Rate falls an illusion

Home loan rates have been rising steadily this year, driven primarily by the three increases Reserve Bank governor Alan Bollard has made to the official cash rate (OCR). This has pushed floating rates to levels not seen for many years and fixed term rates are truly expensive compared to just a year ago.

The five-year fixed rate, which looks the cheapest option at present, is actually at levels not seen since before the current housing boom started.

However, astute market watchers will have seen that two and three year fixed rates have been falling gradually over recent weeks. This may look like we have reached the summit of this interest rate cycle, but that's not necessarily true.

Economists debate whether there will, or won't, be another hike in the OCR. Views are mixed but generally in the affirmative. All eyes now are firmly on Bollard's next rate review which is due on Thursday next week.