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Cash rates have little effect on mortgage holders

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Cash rates have little effect on mortgage holders: ACNielsen

Auckland, January 8, 2006 – Changes made by the Reserve Bank to official cash rates (OCR) appear to have little effect on Kiwis who claim they won’t alter spending behaviour even if the cash rate changes upwards by 0.5 percent, an ACNielsen online survey revealed today.

“Efforts by the Reserve Bank to use the OCR to maintain price stability and inflation in low single digits appear futile in the current financial climate”, said Mr Alistair Watts, managing director for ACNielsen Pacific and Japan, “as most Kiwis claim to be immune to these changes.”

While only five percent of those surveyed held no debt of any type, on average, the 95 percent with debt, which includes mortgages and credit cards, owed $23,000.

In all, 43 percent of those surveyed held a mortgage. About two thirds of them were on a fixed rate mortgage and one third on a floating rate.

89 percent of all fixed rate mortgage holders have fixed for two years or more so are unaffected by fluctuations in short term interest rates. Of these, 21 percent have fixed for five years with an average balance of about $190,000 per mortgage holder; 31 percent have fixed for three years with an average balance of $160,000; and 37 percent have fixed for two years with an average balance of around $170,000.

Mr Watts said many people didn't know what their interest rate was. “Of those interviewed, the majority (61%) don’t know what the official cash rate is with only eight percent identifying it correctly and the rest thought they knew but got it wrong (31%).”

And when ACNielsen asked all respondents what effect it would have on their current spending habits if the OCR was lifted by 0.5 percent, the majority speculated that it would have little or no effect (94%).

“If you don't know or you don't see a relationship between interest rates and the OCR, then it's highly unlikely you're going to feel that you're going to be affected,” Mr Watts continued.

Understandably, people with fixed mortgages who aren’t necessarily going to be impacted in the short term by fluctuations in the OCR felt there would be little or no effect on their spending habits (91%). But interestingly, even those with floating mortgages who may be impacted by changes in OCR also felt it would have little or not effect on their spending habits (95%).

69 percent of mortgage holders were unlikely to make changes to their mortgage in this scenario with only 16 percent likely to change.

About ACNielsen
ACNielsen, a VNU business, is the world's leading marketing information provider. Offering services in more than 100 countries, the unit provides measurement and analysis of marketplace dynamics and consumer attitudes and behavior. Clients rely on ACNielsen's market research, proprietary products, analytical tools and professional service to understand competitive performance, to uncover new opportunities and to raise the profitability of their marketing and sales campaigns. To learn more, visit www.acnielsen.co.nz.

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