Brian Berry - Financial Advisor
	Straight forward, quality financial advice - so you can get on with the fun stuff in life. Click to view Rothbury's website.

Well, it has taken just over a week for the 0.25 per cent increase in the OCR (Official Cash Rate) to start flowing through into home loan rates and, as of Friday only one bank has moved, putting up their variable, six month and one year rates.

Whilst the increase in the variable rate and six month rates matched the 0.25 per cent increase in the OCR, the one year rate only moved 0.1 per cent.

To a degree it has probably been competitive pressures that have been holding banks back from increasing their rates as no-one wanted to be the first to move.

Also, the fact that the one year rate has not moved to the same degree (only 0.1 per cent versus 0.25 per cent) perhaps reflects that the financial markets had anticipated the increase in the OCR and already had it priced in and is also possibly due to the fact that there is so much uncertainty out there and therefore that rates (as pushed by increases in the OCR) may not increase as quickly as previously thought.

As with the last 18 months or so, there are a lot of 'ifs' and 'buts' at present that make accurate forecasting very difficult, especially on the likely track of interest rates. What we do know is that the trend will be up as inflation will need to be kept under control and the main tool for achieving that is increasing interest rates via the OCR.

As discussed previously, following the OCR up or fixing for 18 months, two years or even three years may result in a similar cash flow result, but it will take a strong mind to run with a variable rate strategy and the temptation for some will be to eventually 'panic' and decide to fix at rates higher than where they are now.

Most people desire a reasonable degree of certainty and I personally like a strategy that does include some certainty for a reasonable period, but you have to pay a premium for gaining that certainty. Fixing for say 18 months to two years now gets you through to late 2011 or to mid-2012 and rates are likely to be still elevated at that time so it is important to position yourself in anticipation of that.

I quite like a strategy that achieves a spread of risk and provides the opportunity to get some cash flow benefit if the increasing cycle is slower and/or shorter than expected, but provides protection if it is faster and perhaps a bit longer. Such a strategy could involve a portion of your debt on a variable rate and perhaps a mix of the 18 month and two year fixed rates to provide certainty for a reasonable period but without being exposed to a single review date.