Home loan interest rates are set to rise more than previously expected – but borrowers may now have a chance to lock in “surprisingly low” rates.
New Zealand’s GDP rose 1.7% in the June quarter, more than many economists had predicted. At the same time, inflation in the United States remains higher than some had expected.
This prompted economists to predict that the Reserve Bank may need to raise the official exchange rate (OCR) before bringing inflation under control.
Instead of 4%, ANZ now expects a peak of 4.75% – although others have only revised their forecast to 4.25%. It is currently 3%.
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The last time the official cash rate was near 4.75%, the average floating rate for new home borrowers was 7.88% and the average one-year rate was 6.89%.
Currently, the major banks charge between 6.5% and 6.85% for floating loans and 5.15% to 5.75% for one-year terms.
The SBA’s senior economist, Chris Tennent-Brown, said the interest rate market was “wobbled a bit”.
He said he had been surprised by the high level of interest rates in June and July, with numerous Reserve Bank hikes, but then surprised by the fall in rates when concerns increased over the prospect of a recession.
“Our forecast is somewhere in the middle.”
He said that if people feared inflation was becoming a longer-term problem, there were opportunities to lock in interest rates at historic lows.
He said it was likely that floating rates would hit close to 8% and six-month, four- and five-year maturities could hit 7%.
“The four- and five-year rates were actually at those levels in June, before the July cut. We believe the decline will reverse – wholesale rates have already done so – and longer term mortgage rates will return to these levels.
“Expected increases in OCR will also increase shorter tenors over the coming months. The mortgage curve normally has this Nike tick shape, with one and two year rates being the lowest, and we expect this continues.
Infometrics chief forecaster Gareth Kiernan said there will be more upward pressure on mortgage rates over the next six to nine months.
“Retail rates look surprisingly low at the moment, and we see a real chance that the lowest available rate will rise back towards 6.3% in the first half of next year. If ANZ’s forecast of an OCR 4.75% is correct, then this spike in one- and two-year mortgage rates could be as high as 6.7%,” he said.
Ella Bates-Hermans / Stuff
Banks, like any business, want to charge as much as they can. That’s what it means for your interest rates.
“Such high interest rates would have a significant negative impact on the housing market, household spending and broader economic growth, so the Reserve Bank is hoping there is evidence that it is starting to get a hold of it. inflation at the start of next year, thus allowing them to justify not raising interest rates beyond the first quarter of the year and avoiding the need to plunge the economy into a major recession .
He said banks were using test rates of 6.2% in the first half of last year, so if rates hit 6.7% there was “considerable risk of default” for some of the buyers of Last year. “[They] may be unable to meet their increased repayments, leading to a wave of mortgage lender sales and greater and more prolonged downward pressure on house prices.
A test rate is the rate the bank uses to assess whether a borrower can afford a loan.
ANZ chief economist Miles Workman said it was likely any changes to the official exchange rate would be fully passed on to the floating rates.
But he said fixed-term rates may move less, as the market had already forecast an OCR spike above 4%. When ANZ expected an OCR spike of 4%, it said floating rates would top out at 8.1% and five-year rates at 6.2%. Workman said those forecasts were being updated.
He said what the market expects for the cash rate will be important for where mortgage rates settle.