This after a slight drop in annual inflation to 7.2%
Kiwi homeowners need to brace for mortgage rates to hit 7% for one-year terms, following the latest report from Stats NZ showing that inflation has barely moved.
New Zealand annual inflation eased slightly at 7.2% in the September quarter, defying predictions of a more significant drop to around 6.5%.
Read more: New inflation figures released
As the Reserve Bank continues its attempt to push down inflation to its benchmark 1-3%, the OCR, which currently sits at 3.5%, is tipped to go up as much as 0.75% next month.
“That peak of 5% now looks fairly plausible, so could imply a mortgage rate on a fairly standard one-year term of maybe even 7.5%,” Kelvin Davidson, CoreLogic NZ chief property economist, told 1News. “A big change, so that’s going to mean quite a big change for household finances."
Some 44% of mortgage holders were due to refix, which means those who secured one-year fixed loans at between 2% and 3% could see their rate double.
“It’s a big shift and when you convert it into dollar terms, it’s a big chunk of income,” Davidson told the publication. “So, there’s going to be some stress coming on and when you think about other cost-of-living stresses as well, petrol prices have fallen a little bit but not that much, there’s a lot of strain coming on.”
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The CoreLogic economist said that while banks carry out serviceability tests, the margin between what people could pay and what they do pay is narrowing.
“People will just have to adjust those finances and be pretty careful, and you’d think there would be a tipping point somewhere where, actually, it becomes a little bit too much of a stretch for people,” Davidson said.
ASB predicted the OCR to peak at 5.25% by April, while ANZ, Kiwibank, and Westpac all predicted a 5% peak. BNZ, on the other hand, is expecting the Reserve Bank to stop the hikes at 4.5%, 1News reported.
