Several banks immediately dropped mortgage rates yesterday morning in reaction to the OCR being cut to 3.25 per cent.
Several banks immediately dropped mortgage rates yesterday morning in reaction to the OCR being cut to 3.25 per cent.
Home buyers outside Auckland will benefit most, say bankers.
The Reserve Bank's decision to lower the official cash rate has been heralded as a positive move for house buyers outside Auckland, but has sparked fears it could further inflame an overheated property market in the country's largest city.
Several banks, including ANZ, ASB, Kiwibank and Co-operative Bank, immediately dropped mortgage rates yesterday morning in reaction to the OCR being cut to 3.25 per cent. Other major banks were expected to follow suit but Westpac and BNZ said they would not move last night.
Fred Ohlsson, managing director retail and business banking at ANZ, said home buyers, particularly those searching for their first home, would welcome the new rates.
Reserve Bank governor Graeme Wheeler defended the decision amid concerns it could push up Auckland house prices by allowing buyers to use lower interest rates to borrow more money.
Appearing before a select committee yesterday afternoon, Mr Wheeler said officials had "thought a lot about the Auckland house price situation".
He told MPs officials were concerned about house price inflation of 17 per cent in the city and a house price-to-income ratio of 7.5. But he said these problems were mostly limited to Auckland, and the bank had already introduced measures to combat this.
The dollar fell from US72.07c before the announcement to US70.19c by 5pm yesterday. A lower dollar is good news for exporters, whose products become more affordable in the international market, but bad news for consumers, who get less for their money when it comes to buying imported goods.
Loan Market mortgage adviser Bruce Patten said the OCR cut was a positive sign for consumers, who he had been telling to hold off from committing until yesterday's announcement.
The move could signal a major shift in the interest rate market, which over the past decade had averaged just over 7 per cent, he said.
"Our new rate regime will now stay within that 5-6 per cent range and I don't think we'll see any upward shift any time soon."
He said property markets other than Auckland would be bolstered by the move.
Prime Minister John Key disagreed that the Reserve Bank's rate cut would worsen the housing problem.
Encouraging supply was "the single biggest thing we can do", he said.
Property Institute chief executive Ashley Church said the OCR news sent a "mostly positive" message to the market. He said it would encourage sustained economic activity, help lower the exchange rate, give struggling households more money, assist developers to build more homes and offset the cost of owning a home - particularly in Auckland.
Federated Farmers called the OCR cut "a decisive message" from the Reserve Bank that would take pressure off the dollar and help farmers currently experiencing low prices.
President Dr Willima Rolleston said: "... any reduction ... will be incredibly helpful during this difficult period."
Owner will shop around
Ammar Casey says the move by the banks was a step forward for first-home buyers. Photo /
Jason Oxenham
Aucklander Ammar Casey plans to completely restructure his mortgage following the announcement by banks yesterday that they will be dropping interest rates.
The 33-year-old from London arrived in New Zealand in August 2011 and bought a four-bedroom house in East Tamaki a few months later.
He has a two-tier mortgage with ASB at a fixed rate of 5.25 per cent, but with that ending next month he said he would be shopping around with different banks to see who could give him a better offer.
"I'm going to tee up a couple of appointments and meetings and things and see what I can get out of it, see if I can score a better deal ... obviously the more I can save the more I can put towards my family and towards my kids."
He said he and his wife were now looking at dividing their mortgage into thirds, with two fixed rates - one at longer term than the other - and one floating rate.
He said the move by the banks was a step forward for first-home buyers and was "even better" for those who already own a home
