Prime Minister John Key says the Reserve Bank's new restrictions on low equity mortgage lending will inevitably lead to higher home loan rates but recent increases are largely a result of expectations the central bank will raise rates over the next 12 months to curb inflation.
With banks increasing fixed home loan rates and requiring higher premiums for low equity loans since the Reserve Bank announced loan to value restrictions (LVR) last month, Mr Key was this afternoon asked whether first home buyers were being hit before the policy even takes effect next month.
But Mr Key said the "slight increase" in fixed rates was because the market was building expectations the Reserve Bank would raise its benchmark overnight cash rate over the course of the next 12 months, "so that's not surprising that's there".
Reserve Bank Governor Graeme Wheeler will give further clues about his intentions at his Monetary Policy Statement on Thursday.
Mr Key told reporters it was better for the Reserve Bank to have LVRs at its disposal, "to protect the housing market rather than to leave it totally unchecked and have a situation where there's a bubble that bursts and those first home buyers are left with an over-priced home".