Don’t anticipate lockdown to cease mortgage charge rises
The Reserve Bank may have put the official cash rate (OCR) on hold this week, but mortgage rate hikes are still in sight, according to economists.
Prior to the country’s sudden lockdown, it was widely expected that the Reserve Bank would raise OCR from its record low of 0.25 percent on Wednesday.
But the arrival of the Delta variant of Covid-19 in the community meant the Reserve Bank chose not to overturn the OCR as it “has the least regret” of its political stance.
But economists agreed that more mortgage rate hikes would come. anyway.
* Borrowers have to prepare for higher mortgage rates, says ASB
* The end of the record low interest rates is approaching
* Mortgage rates are falling and further fueling the real estate market
ASB senior economist Chris Tennent-Brown said the hiatus was perfectly reasonable, but OCR hikes were still in sight and further mortgage rate hikes were expected.
The bank’s economists continue to believe that mortgage rates have bottomed out, he said.
“Fixed-term mortgage rates have been hiked this year and our forecasts indicate that further rate hikes will follow later in the year.”
The local economy is resilient and there is confidence in the longer-term prospects, he said.
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Economists continue to forecast rising mortgage rates in the coming years.
“Any reserve bank session should be viewed ‘live’ for OCR enhancements, although the recent outbreak is a reminder that the situation is fluid. We assume that OCR will reach a high of 1.5 percent by the end of 2022. “
Based on these assumptions and assumptions about banks’ funding costs and inflation projections, ASB economists expected mortgage rates to rise to around 1 to 2 percent levels over the next few years, as they are now.
“Borrowers will be pleased to hear that we continue to expect mortgage rates to settle at levels well below the long-term average of the last 20 years over the next ten years.”
Independent economist Tony Alexander said the community outbreak means some economic factors have changed, but not necessarily to the extent that some hopeful borrowers might think.
The decision to put an OCR change on hold is only a temporary step, he said.
“The depth and speed of inflationary pressures that have built up and growing in an economy that has been boiled over by our central bank – interest rates that have been too low for too long – will remain intense.”
It is now known that after a lockdown, the economy has increased along with spending, property prices, attitudes and inflation, he said.
“The starting point for inflationary pressures is much bigger now than it was last March, so rate hikes are yet to come.”
CoreLogic chief economist Kelvin Davidson says that even a small increase in mortgage rates from a low level is a large proportional change.
CoreLogic’s chief real estate economist Kelvin Davidson said while the lockdown could mean any looming OCR increases would be more gradual, the medium-term prospect is for a further hike in mortgage rates.
Hopefully, from a financial stability perspective, borrowers saw even a small spike in mortgage rates, which equated to a large proportional change and a significant increase in their repayments, he said.
“If mortgage rates rose from 2.5 percent to 4 percent over time, someone buying an average $ 922,421 property with a 30-year mortgage and a 20 percent deposit would have 14- day repayments increase by about $ 280 (or nearly $ 7,300 annually). ”