29 Mar 2016

Will interest cuts really inflame housing market?

11:28 am on 29 March 2016

A banking expert is casting doubt on whether cutting interest rates further will inflame the housing market.

The Reserve Bank cut the official cash rate to a record low 2.25 percent earlier this month, and signalled more cuts were to come.

That upset some analysts who fear cuts will do nothing but excite an already frothy housing market, particularly in Auckland.

But Massey University School of Economics and Finance associate professor David Tripe is sceptical that will happen, saying house price expectations are the key driver, not interest rates.

"If we have a bubble in the housing market, that's driven by expectations of price increases... not necessarily particularly constrained by interest rates," he said.

David Tripe said retail banks' overseas funding costs, which sets fixed mortgage rates, were rising.