Prime Minister John Key says the Reserve Bank's new restrictions on low equity mortgage lending will inevitably lead to higher home loan rates but recent increases are largely a result of expectations the central bank will raise rates over the next 12 months to curb inflation.
With banks increasing fixed home loan rates and requiring higher premiums for low equity loans since the Reserve Bank announced loan to value restrictions (LVR) last month, Mr Key was this afternoon asked whether first home buyers were being hit before the policy even takes effect next month.
But Mr Key said the "slight increase" in fixed rates was because the market was building expectations the Reserve Bank would raise its benchmark overnight cash rate over the course of the next 12 months, "so that's not surprising that's there".
Reserve Bank Governor Graeme Wheeler will give further clues about his intentions at his Monetary Policy Statement on Thursday.
Mr Key told reporters it was better for the Reserve Bank to have LVRs at its disposal, "to protect the housing market rather than to leave it totally unchecked and have a situation where there's a bubble that bursts and those first home buyers are left with an over-priced home".
"So we do have to have proper controls in there and I think it's inevitable that you will see some change in the pricing."
But Labour housing spokesman Phil Twyford said some banks had publically linked recent interest rate increases to the LVR policy.
"Others in the banking industry have said to me the current round of increases are in at least part due to the LVRs."
While the BNZ and ANZ recently said increases in their low equity premiums reflected new costs associated with the Reserve Bank's LVRs they and Westpac and ASB have put recent increases in fixed rates down to higher overseas funding costs.
KiwiBank recently introduced split pricing with low equity borrowers paying a higher rate.
Meanwhile, Mr Key said his Government would continue its record of being conservative with government spending into the 2014 election, which would in turn help the Reserve Bank keep interest rates low.
"I don't anticipate that 2014 will be some sort of massive lolly scramble."
There would be a series of new policies but all within a "tightly defined fiscal window".