The Reserve Bank may have left its official interest rate (OCR) unchanged this week, but a rise in mortgage rates is still around the corner, economists say.
Prior to the country’s sudden quarantine move, many expected the Reserve Bank to raise OCR from a record low of 0.25 percent on Wednesday.
But the emergence of the delta variant of Covid-19 in the community meant that the Reserve Bank decided not to cancel OCR.as his political position of “least regret”.
But economists agreed that mortgage rates would rise. anyway.
ASB Senior Economist Chris Tennent-Brown said the pause was appropriate, but the OCR increase is still in place and further increases in mortgage rates are expected.
According to him, the bank’s economists continued to believe that mortgage rates had already passed the minimum mark.
“Term mortgage rates have increased this year, and our forecasts assume further increases for the rest of the year.”
According to him, the local economy is stable and there is confidence in the long term.
“Every meeting of the Reserve Bank should be considered ‘live’ for the increase in OCR, although the latest outbreak is a reminder of the volatility of the situation. We expect OCR to peak at 1.5 percent by the end of 2022. ”
Based on this, along with assumptions about the cost of bank financing and inflation forecasts, ASB economists expected mortgage rates to rise to levels about 1-2 percent higher than they are now over the next few years.
“Borrowers will be pleased to know that we continue to expect mortgage interest rates to eventually stabilize over the next decade at levels well below the long-term averages over the past 20 years.”
Independent economist Tony Alexander said the community outbreak means that some economic factors have changed, but not necessarily to the extent that some up-and-coming borrowers might think.
The decision to suspend any OCR change was only a temporary step, he said.
“The depth and speed of inflationary pressures that have created and are growing in an economy that has been digested by our central bank – interest rates have been too low for too long – will remain high.”
It is now known that the economy has grown sharply since the lockdown, along with spending, house prices, rents and inflation, he said.
“The starting point of inflationary pressures is now much higher than last March, so interest rate hikes are still ongoing.”
CoreLogic chief economist Calvin Davidson said that while isolation could mean any looming increase in OCR will be more gradual, mortgage rates are forecast to continue to rise over the medium term.
In terms of financial stability, it is hoped that borrowers have recognized that even a small increase in mortgage rates equates to a significant proportional change and a significant increase in their payments, he said.
“If mortgage interest rates rise from 2.5% to 4% over a period of time, someone who bought a property at an average price of $ 922,421 with a 30-year mortgage and a 20 percent deposit will see that two-week payments will rise by about $ 280 (or nearly $ 7,300 a year). ”