Many factors affect affordability

Housing affordability has become the cause de jour.

Most comments on it refer to price but there are many factors which affect affordability and one of those is interest rates.

The Reserve Bank has said the official cash rate could increase by 2% from 2014 to the beginning of 2016, which could mean interest rates on first mortgages of 7 – 8%.

Speaking on TV3’s The Nation programme on Saturday, Dr Smith said interest rates had been at historic lows for some time, and at some point they would increase again.

He said it was inevitable as the economy improved that the 50-year low mortgage interest rates would rise. . .

This is stating the obvious.

It is very unlikely that interest rates will go down and much more likely they will rise than stay where they are.

This is one of the reasons it’s important that people aren’t encouraged to over-stretch themselves when borrowing.

Very little equity in a property could turn into none, or less, with a small fall in property prices and even a slight increase in interest rates would impose a big extra cost on a large mortgage.

Those of us who farmed our way through the ag-sag of the 80s know this only too well.

“What we want to do as a Government is to make sure that our fiscal policy and the way in which we are managing the economy keeps access for New Zealanders to low interest rates for as long as possible.”

If interest rates go up the dollar will almost certainly follow making exports less competitive and that will hurt all of us.

We need continued discipline in government spending and polices which promote saving, investment and export-led growth not those pedalled by the opposition which are even worse than the ones which put New Zealand into recession before the global financial crisis hit.

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