The Reserve Bank expects strong house price inflation to continue longer than previously though.  This has been attributed to low interest rates, rising migration and a shortage of supply in our biggest cities.

The restrictions on high loan-to-value lending introduced earlier this year was a means to restrict demand for housing loans, reducing price increases by between 1 and 4 percent.  But the low interest rates and migration pressures means the bank now sees the strength in the market lasting longer than previously expected.

The Reserve Bank is expecting demand for housing to cool when it lifts interest benchmarks rates next year.  When the bank starts tightening monetary policy, it will likely have a staggered effect on home lenders with borrowers switching to fixed rates and away from floating rates.  Floating rates were popular in the wake of the global financial crisis as low interest rates made floating rates more attractive.

Source: Yahoo BusinessDesk

The Reserve Bank announced earlier this month it had left its official cash rate (OCR) unchanged at 2.5 per cent, but market expectations are for the bank to start increasing rates early next year.