NZ mortgage interest rates expected to rise

Mortgage interest rates will rise

In mid-2022 according to the Reserve Bank of New Zealand

Fixed mortgage interest rates have already hit the lowest they will go for the near future, if the Reserve Bank’s outlook issued in its 26 May monetary policy statement comes to pass.

However, New Zealand’s central bank (who regulate the mortgage lenders such as ANZ and Westpac) said that was conditional on the economic outlook evolving broadly as anticipated and talked of the need for “considerable time and patience”.

What did they say about mortgage rates?

It was broadly suggested that mortgage interest rates could go up from mid-2022.

Existing and prospective mortgage holders were issued a stark warning: “Think in a long-term sense when you’re considering mortgages, when you’re considering buying.

“Don’t get excited about the current mortgage rate. Think about what mortgage rates might look like on average through time…

“Interest rates are very low and certainly below what we would consider a neutral interest rate globally… Be wary around your ability to service a mortgage.”

Background to low mortgage interest rates

Mortgage rates have hit record lows over the past year as central banks pumped stimulus into their economies to ward off the financial impact of COVID-19.

However, inflation fears have returned as economies improved, putting pressure on long-term interest rates around the world.

Kiwibank chief economist Jarrod Kerr​ said that, going by the Reserve Bank projections, New Zealand had seen the end of record low mortgage rates for some time.

CoreLogic head of research Nick Goodall​ backed this up, and said there had already been a tick up in longer term interest rates and the forecast OCR rate reaffirmed that would continue to happen.

“As soon as there is an expectation that longer term interest rates will start to lift, people will start to go well, today’s rates are pretty good, and they will start to lock in at those rates as well.

“You will see people starting to fix longer term than they have been previously, which was all short-term.”

Will interest rates really rise?

RBNZ Governor Adrian Orr was conscious of striking the right balance in the press conference when this came up, he highlighted that the interest rate hikes were “highly conditional” and a lot could happen before mid-next year.

The future is both unknown and unknowable. New Zealand remains a small country that is particularly vulnerable to natural disasters, biosecurity risks, or other external shocks such as a war or upheaval in one of our major export markets. Any of these matters would be expected to send interest rates tumbling again and given what’s happened over the last couple of decades it’s more than reasonable to expect at least one of these shocks over the next five or so years.

Economists from NZ’s second-largest bank, ASB, are publicly saying they do not expect interest rates to move up significantly over time and expect a peak in late 2023 or early 2024. This suggests that interest rates for both mortgages and savings in the bank are likely to ‘settle’ at still-historically low levels.

Whether you’re repaying an existing mortgage, or looking to buy your first home, it would be the pleasure of our team to talk through what anything mentioned above might mean for you. Leave your details below and we’ll get back in touch within one working day: