Home loans rates not keep up with OCR increases

• Tweet

Borrowers might be in for a brief respite from remorseless pressure to push interest rates ever higher, according to an  economist.

Monday, January 30th 2023, 5:34PM 1 Comment

by Eric Frykberg

But it is not certain that this reprieve will last.    

The official cash rate (OCR) which has grown exponentially in just 15 months and is forecast to go higher. 

Infometrics principal economist Brad Olsen said the interest bill that people actually pay has been rising more slowly than the OCR. 

“Since late 2021, the OCR has increased by four percentage points, but the average one-year fixed special rate has only increased by 3.68 percentage points,” Olsen said. 

“There was a case at one point where banks were pre-loading these (OCR) increases, but in recent times the growth in those sorts of interest rates has not been quite as strong.”

Olsen said this trend had become more marked in the middle of last year and would resume over the next one to two years.  

But the evidence was here even now. 

He said that applying average ratios from before the pandemic, the one-year fixed rate should be 6.80%.  

“I am using as my comparison one-year rates, but the same would hold true for two-year rates,” he said. 

But this slight easing of pressure on borrowers might not last, Olsen said.

“It certainly wouldn't be our view that we have reached the top of the interest rate market,” he said.

“If the Reserve Bank has still got well over a hundred basis points to go, and fixed rates are already behind the curve,  then in our view you are still going to see those rates go up.”

Comments from our readers

Sign In to add your comment