House mortgage charges rising quicker than anticipated: Economist
Kiwibank’s chief economist says the pace of home loan rate hikes in recent months has come as a surprise.
The bank on Tuesday raised interest rates on a number of home loan terms, increasing its special two-year rate from 3.3 percent to 3.59 percent and its standard two-year rate from 4.15 percent to 4.44 percent. The three-year special has increased from 3.65 percent to 3.99 percent.
It follows several moves by other banks over the past few months that have brought rates far from their previous all-time lows.
The Reserve Bank raised the official cash rate from 0.25 percent to 0.5 percent this month for the first time in seven years, and economists say it is likely to continue down this path despite the ongoing Auckland lockdown.
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Economists at Kiwibank said inflation spiked in the September quarter, which pushed the annual rate to 4.9 percent, would worsen it further.
The Reserve Bank aims for inflation between 1 percent and 3 percent and an average of 2 percent.
Kiwibank’s chief economist Jarrod Kerr said inflation is likely to peak at 6 percent.
He now reckoned that the official currency exchange rate would reach 2 percent in November next year. He had previously predicted that the Reserve Bank would hit 1.5 percent and take a break.
He said the rate of mortgage rate hikes has been faster than expected. “In May we expected the first lift at the beginning of next year or at the end of this year, but now we are seeing two tariff increases this year and more next year.”
There is also illiquidity in the wholesale markets, he said, because hedge funds and sovereign wealth funds are asking for money at fixed rates.
Ross Giblin / stuff
Jarrod Kerr said mortgage rates would continue to rise, but more slowly.
“Banks have tried to secure the flow of mortgages by paying the fixed rate in swaps, in a market where, on the other hand, there are few … This imbalance will continue into the Reserve Bank’s November MPS. The imbalance indicates a higher upside risk in mortgage rates. “
Kerr said mortgage rates would continue to rise, but more slowly.
Infometrics economist Brad Olsen said the government’s targeted support for those affected by the Auckland lockdown meant there was less need for sustained monetary support through a low official cash rate.
“Economic conditions remain optimistic, with business confidence holding up well and so is consumer confidence. Increasingly, the parts of the economy hardest hit by the lockdown are more specific and defined, meaning that a focused approach rather than blanket support is best used to focus on those who need the support.
“Equally important, there is still real and ongoing economic pressures, with ongoing higher shipping costs and supply chain disruptions, and still solid spending outside of Auckland.
“With the government taking on more of the support in the current environment, the Reserve Bank will want to reduce the level of emergency stimulus it is providing to the economy as inflation rises and capacity constraints ease.”