Borrowers may face further hikes, economist says
Kiwibank and the Bank of New Zealand have increased some of their key home loan interest rates.
Read more: Kiwibank predicts a 50bp rate hike next week
For BNZ borrowers with an equity of 20% or more in their homes, the one-year home loan rates for owner-occupiers have been raised from 5.15% to 5.45%, and the two-year rate from 5.39% to 5.59%.
But for people with less than 20% equity in their homes, BNZ charges additional “low-equity premiums,” which is calculated only when the loan is first taken out, Stuff reported.
Meanwhile, Kiwibank’s one-year fixed-rate home loans for people with 20% or more equity in their homes have gone up from 4.95% to 5.39%.
The New Zealand-owned bank has also lifted its two, three, and four-year fixed mortgage rates, but has not changed its five-year fixed rate of 5.99%.
As with BNZ, Kiwibank borrowers with less than 20% equity in their homes are charged more.
Kiwibank’s one-year rate for low-deposit borrowers is now at 6.39%, from 5.95%.
“As we can see in the current cycle, the movement in interest rates can be quite volatile,” Kiwibank chief economist Jarrod Kerr told Stuff. “When economic growth is slowing, interest rates are slashed to stimulate growth. We saw a historic low in interest rates during the COVID-19 pandemic. When the economy is heating up, interest rates are lifted to cool the economy down and tame the inflation beast. Interest rates have been hiked aggressively by the Reserve Bank of New Zealand which, in turn, causes banks to hike interest rates, in response to rapid price increases.”
Kerr said borrowers may face further hikes.
“Many people have been asking, ‘Will home loan interest rates keep rising?’ and the answer is that the Reserve Bank will continue lifting interest rates until they have seen a clear turn in inflation,” he said.
Kiwibank believed inflation had already reached its peak at 7.3% and should drop within RBNZ’s target band of 1% to 3% next year.
“Mortgage rates are likely to peak at or slightly above current levels. Mortgage rates are likely to hold around current levels into next year,” Kerr told Stuff.
Many Kiwi households aren’t new to large swings in home loan rates.
“Mortgage rates can fluctuate a lot,” Kerr said. “When the Global Financial Crisis hit in 2008, mortgage rates peaked at over 10%.”
Some economists now think the OCR will need to reach a higher peak than previously forecast, to curb inflation. ANZ is now expecting a 4.75% peak while Infometrics recently predicted a peak of 4.5%, up from its previous forecast of 3.5%.
Read next: Mortgage rates to range as high as 7.5% – Kiwibank economists
“We’re increasingly of the view that risks of more persistently high inflation are on the upside and, because of this risk, that the OCR might need to go higher still,” Kerr told Stuff.
