1 Oct 2008

NZ mortgage rates could creep back up

3:34 pm on 1 October 2008

Mortgage rates could creep back up in the next few weeks as billions of dollars raised overseas by banks in New Zealand are due to be paid back.

International money markets are in turmoil and there are fears that banks will not be able to renew all of the maturing debt or have to pass on much higher interest rates.

Banks in New Zealand lowered their mortgage rates after cuts in the Official Cash Rate by the Reserve Bank in July and again last month. The OCR is currently 7.5%.

KPMG banking analyst Godfrey Boyce says overseas lenders - which have in the past provided up to a third of local banks' funds - are about to call in those debts. The move that could put upward pressure on domestic interest rates.

Mr Boyce says large amounts of money are involved.

New Zealand Mortgage Brokers Association president Darren Prattley says banks are already restricting credit and could ration further if funding dries up or becomes too expensive.

However, BNZ economist Craig Ebert says cuts in the Offical Cash Rate by the Reserve Bank at the past two reviews have so far offset increased costs of overseas loans.

But he says borrowers betting on future cuts in the cash rate could be caught if the cost of money on world markets continues to rise.