Short term mortgage rates will rise by at least a quarter of a percent

PHOTO: Photo: RNZ / Nate McKinnon

Households face further belt tightening with mortgage rates set to closely follow the Reserve Bank’s forecast Official Cash Rate hike.

The central bank is widely expected to raise the OCR by 50-basis points tomorrow, as it looks to cool demand in order to tame rising inflation.

John Bolton from mortgage broker Squirrel, said about 60 to 70 percent of the mortgage market re-prices every 18 months, meaning a number of people will enter the higher rate market for the first time.

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The floating rate would likely match the RBNZ hike, and short term mortgage rates would rise by at least a quarter of a percent, with rates likely to go even higher over the coming months, he said.

“The market is not totally irrational in the short term. Consumers tend to panic fix and they can drive rates up further than they need to go.

“I think they have got a bit of room to go up but I certainly feel that we are not far off peak at the moment with some of those longer term fixed rates. But not withstanding people are coming off very low rates so they are going to experience a significant increase in repayments.”