Higher mortgage rates almost certain

Reserve Bank Governor Alan Bollard is almost certain to lift interest rates by a quarter of a percentage point to 7 per cent on Thursday as he tries to slow consumer spending and rising inflation.

The increase would push up floating home-mortgage rates to around 9.25 per cent - among the highest in the developed world - adding around $43 a month to the cost of paying off a $250,000 loan over 25 years.

Dr Bollard has already lifted interest rates seven times since the beginning of last year to try to slow consumer spending, but with petrol prices pushing annual inflation up to a five-year high of 3.4 per cent in September, economists say another rise is almost inevitable.

Under his agreement with the Government, Dr Bollard has to keep inflation between 1 per cent and 3 per cent over the medium term.

A fortnight ago, Dr Bollard warned householders against continuing their spending binge, financed largely by borrowing against their houses. He said house prices would not keep rising.

Nonetheless, residential property remains New Zealanders' favourite investment, says the quarterly ASB Investor Confidence report released today. Some 23 per cent of respondents said they expected residential property to provide the best returns.

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