Homeowners likely to face more expensive mortgages that previously forecast
Kiwibank is lifting the interest rates charged on a number of its home loan terms, as homeowners potentially face more expensive mortgages than previously forecast.
Read more: Kiwibank announces changes to fixed home loan rates
The state-owned bank hiked its two-year standard rate from 5.55% to 5.85%, and its special rate from 4.55% to 4.85%. For three-year terms, the bank’s special rate and standard rates each rose 20 basis points, respectively, to 4.99% and 5.99%.
Meanwhile, Kiwibank’s standard five-year rate is now 6.79%, up from the previous 6.16%. Five-year rates Reserve Bank data showed the rate has not been that high since mid-2014, Stuff reported.
Other main banks have five-year rates between 5.69% and 6.09%.
The pace of interest rate increases has come as a surprise to many commentators. From the 3.78% average five-year rate being taken out by borrowers in March 2021, it became 5.47% in February this year.
Read next: Kiwibank and BNZ raise home loan rates
For Kiwis with a $500,000 home loan, the difference between those two rates is just over $220 a fortnight on a 25-year loan term.
More borrowers will see a significant increase in their repayments. Reserve Bank data showed $68 billion of owner-occupier lending is due to be refixed within the next six months, with another $100 billion will be refixed within six months to a year.
Retail home loan interest rates had earlier been forecasted to peak at about 5%.
Gareth Kiernan, Infometrics chief forecaster, said that would have been based on an OCR peak forecast of 2% to 2.5% by 2023.
“But with expectations that it could now get up to 3% to 3.5% next year, the predicted trajectory is affecting the longer-term rates,” Kiernan told Stuff. “We’ve also seen a lift of about 50 basis points in ten-year bond rates over the last month, so Kiwibank’s five-year rate seems about right given where wholesale interest rates have moved to. Our current expectation is that five-year fixed rates peak at about 6% in the first half of next year, but there are still some upside risks to that outlook.”
Christina Leung, NZIER principal economist, expected floating rates to be about 6.25% in five years’ time, with an OCR of 3.5%, but noted that was still a long time away and “anything can happen by then.”
“The high inflation environment means that interest rates around the world will be heading up, so there will certainly be further increases in mortgage rates ahead,” Leung told Stuff.
According to recent Reserve Bank analysis, nearly 20% of recent first-home buyers would face serviceability stress if mortgage rates increase to 5%. At 6%, nearly 50% would be impacted, and would also put investors and some existing owner-occupiers under pressure.
Kiwibank also lifted term deposit rates by between 10 and 50 basis points. It is now paying 3.2% on $10,000 invested for two years, up from 2.7% previously, Stuff reported.
