RATE RISES SET TO CREATE HEADWINDS

Falling interest rates have been one of the key drivers of the house price boom over the past 18 months. ASB expects this tailwind to soon flip into a light headwind, joining the likes of rising housing supply, tighter credit conditions, and reduced investor enthusiasm for housing.

Mortgage borrowing has gone nuts over the past year, with new lending up about 45% on the previous year. Ever-higher house prices have meant more debt has been required to either get on to the property ladder, or to trade up.

Data on mortgage fixing suggests households are quite sensitive to the risk of a mortgage rates rise over the coming 12 months. The mortgage lending boom has been mostly for relatively short fixed-rate terms, says the bank.

The average duration of outstanding mortgage debt (including floating) has