I got such a hard time for my John Key comments by Johnny-Johnny at www.umami.co.nz that I promised him I’d try and find a more balanced argument to ‘reflect’ the other side.

John kindly pointed out to me an NZ Herald article where Helen Clark appeared to be confused about whether mortgage rates were going through the roof or not. I saved the link in my Google Notebook and have only just read the article in it’s entirety.

Here’s the quote which piqued Johnny-Johnny’s interest:

A transcript of the interview shows she suggested plans by National would require big cuts to the public service and would see “your mortgage rate going through the roof because the system couldn’t stand it”.

The presenter responded: “It’s going through the roof with your lot.”

But the Prime Minister dismissed that: “Well no, no, it’s not going through the roof.”

Questioned again, she went on to explain that inflation was “just right on top” of the Reserve Bank’s target band, and was “similar to where things are” in Australia.

Sorry Johnny-Johnny but I have to agree with the Prime Minister that mortgage rates are NOT going through the roof. House prices might have been (look here), but mortgage rates aren’t…indeed there is talk of interest rates reducing before the year end, and if the stats are to be believed house prices are also falling, or at least levelling.

I’m a baby boomer. I bought my first house in 1988 when an interest rate on a first mortgage was around 16.5% (They had peaked at 20.5% in 1987!) There was no such thing back then as a fixed mortgage (they were introduced in the late 90’s), so we were always at the whim of the banks. Take a look at the graph on the Reserve bank site.

I think mortgage rates have a long way to go before they reach the levels of the late 80’s – and I think if they did reach those levels then they would indeed be ‘going through the roof’.

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2 thoughts on “Mortgage rates going through the roof?”

  1. Skinny, once again I’m flawed.

    A few points I want to make, firstly if mortgage rates were higher when you got your first monkey… what caused them to lower to the 6.95% I paid on my first house (as a baby boomer’s baby) 4 years ago? In the 80’s and continued on through the 90’s public spending was slashed – could that have had an impact? So with Clark’s comment that the Nats plans would require cuts to public service… wouldn’t history then say it would lead to a drop?

    Also, if the fact that interest rates were higher in the past can be seen as reasonable evidence that they are not “going through the roof” now then surely the fact that we have the highest interest rates in the OECD is evidence that they are? Obviously thinking back three decades is more relevant than comparing ourselves to our peers, today…

    And what did inflation look like in the 80’s compared to today? We’re being told that we’re at (or slightly over) the inflation target set for the Reserve Bank at 3.2%. So with a 10.7% floating mortgage rate you’re looking at a 7.5% difference. In 1987, where you mention interest rates peaked at 20.5% inflation was at a whopping 18.9% – a 1.6% difference…

    Btw, when are we doing lunch? 😉

  2. Hi John,

    I hope you’re not flawed – but rather, floored! Otherwise your argument would have no merit.

    The Reserve Bank Act was enacted in 1989 – in an effort to bring inflation down. It has done this quite successfully over the years. Only recently has it struggled because of an increase in private spending. So to make a distinction between interest rates and inflation in the 1980’s and now is not helpful.

    These days interest rate rises, by the Reserve Bank, have been implemented to curb excessive private spending. And they are further exacerbated by New Zealand’s inability to control the price of oil, and other commodities.

    I still maintain that interest rates aren’t ‘going through the roof’ – which was our original debate. For that to be the case they need to be moving from a very low base to an extremely high one. I haven’t seen that happen. Where they are now is probably where they will remain for the rest of the year – perhaps even drop slightly before years end. Whatever, because if the international situation there’s probably very little we can do about it, except get a better paying job (apparently there’s heaps of them out there) or move to Australia (where you tell me it’s a paradise).

    Lunch next week would be great!

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