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Higher borrowing costs coming

Interest-rate rises are looming, with some pundits picking floating rates to be at 7 per cent by the end of next year.

Friday, June 7th 2013, 12:00AM 1 Comment

by The Landlord

BNZ chief economist Tony Alexander expects floating rates to peak at 8.5% this cycle.

ANZ chief economist Cameron Bagrie said the risk of interest-rate rises was higher now than it had been a few months ago. "But it's not immediately around the corner."

He expected some moves in the OCR early next year.

The Reserve Bank had finalised its arsenal of macroprudential tools aimed at cooling the property market, including loan-to-value restrictions. Bagrie said if they had a noticeable impact on house-price inflation, it would push out the need for interest-rate hikes. "If we don't see a levelling out, it's game on."

Jane Turner, an ASB economist, said she was expecting an OCR move next March and floating rates would follow suit. But she said fixed rates could start to creep up between now and the end of the year. "Fixed rates typically move ahead of an increase in the OCR."

Inflation wasn't running hot enough to prompt the Reserve Bank to move on the OCR this year, Westpac chief economist Dominick Stephens said. "The Reserve Bank doesn't have grounds to increase [the OCR] until next year."

But he said once rises started, they would be swift. He predicted floating rates could reach 7 per cent by the end of next year. But Stephens said borrowers should not take the fact that rates were not due to move this year as a reason to be complacent.

NZIER economist Shamubeel Eaqub said Reserve Bank governor Graeme Wheeler had to strike a balance: "The Reserve Bank still wants to nurture the economy, but balance that against the risks of a hot, frothy property market in Auckland."

Eaqub expected homeowners to be paying 1 or 2 per cent more by the middle of next year.

Alexander said rates were hard to predict: "I don't think anyone has got their interest-rate forecast right for the last four years. ...Interest rate risk management in this new world means giving hardly any weight to rate forecasts and instead simply hedging to buy time to adjust to rate shocks."

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Comments from our readers

On 11 June 2013 at 9:33 am Jeremy said:
I've been listening to threats about the rising interest rates now for about 4 years. Even fixed all my loans. In the meantime interest rates have plummeted. At what point do we just call this kind of talk 'bluff'? NZ does not have high inflation except local house prices in Auckland. It would be madness to raise the whole country's interest rates just because you disagree with local house pricing.

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.79 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 6.79 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.24 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.84 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 ▼8.09 ▼7.59 ▼7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 ▼9.09 ▼8.59 ▼8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.29 7.32 6.65

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