Homeowners in New Zealand should prepare for mortgage rates to reach 7% for one-year terms, according to the latest Stats NZ findings. 

Annual inflation in New Zealand marginally eased at 7.2% in the third quarter, going against forecasts for a more significant decline to around 6.5%. 

As the central bank continues attempts to drive down inflation to the 1-3% benchmark, the Official Cash Rate (OCR) – currently at 3.5% - is predicted to rise as much as 0.75% in November.

“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%,” CoreLogic NZ chief property economist, Kelvin Davidson, told 1News. “A big change, so that’s going to mean quite a big change for household finances."

Around 44% of mortgage holders were scheduled to refix, as such, homeowners who secured one-year fixed loans of between 2% and 3% could see their rate double, NZ Adviser reports. 

“It’s a big shift and when you convert it into Dollar terms, it’s a big chunk of income,” Davidson added. “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.”

The economist went on to say that although banks are undertaking serviceability tests, the margin between the amount people are able to pay and what they do pay is reducing.

“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 commented.

The Official Cash Rate is forecast by ASB to hit a peak of 5.25% by April, whilst Kiwibank, ANZ and Westpac all forecast a 5% peak. Whereas BNZ forecast the central bank will stop the rate hikes at 4.5%, as reported by 1News.
 

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