Official Cash Rate unchanged at 2.5 percent

In leaving the OCR unchanged today Alan Bollard had the following to say…

“Higher bank funding costs have reduced the level of stimulus that would normally be associated with any given level of the OCR. We expect these costs to persist over the projection reducing the extent of future increases in the OCR. Fiscal consolidation would also help reduce the work that monetary policy might otherwise need to do.

“We continue to expect to begin removing policy stimulus around the middle of 2010.”

Not a lot of change in his outlook is evident and the same line of middle of the year was maintained. As a result we currently have seen no changes to home loan interest rates.

Tweaks to our lenders credit policies continue to occur. A recent one is that some lenders are now viewing an application that is made by 2 people who don’t reside at the same address, not as a joint application, but as 2 individual applications.  This means that each party to the housing loan will be assessed as whether they can afford the housing loan in their own right.

The upshot is that this could have a limiting effect on some transactions. Such as those where 2 friends, or 2 members of the same family who don’t live together, are investing in property, one with a strong asset position but little income, and the other with good income but little in the way of savings. Despite taking unlimited personal guarantee’s from each party, and a mortgage over the property, the lender will now assess if each party can afford the housing loan individually.  A transaction such as the above may now be under pressure to proceed.

Enjoy your week.

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