Helen Murrell says she’s glad she didn’t take her mortgage broker’s advice to fix her home loan for a year when she bought her house last year, and did it for three in place.
At the time, he was offered a one-year rate of 2.6%, a two-year rate of 2.99% or a three-year option of 3.39%.
“I would have liked to stare longer of course.”
She said things would be “pretty tight” if she had taken the one-year rate and was now rolling at a rate of almost 6%.
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“If I was paying 6% right now, all my disposable income would cover that gap. Basically, I’m just trying to live like my interest rate is high and pay off my mortgage. But once interest rates hit 7%, I’ll have to take a pension if I want to keep doing things like letting my son take swimming lessons and not eating beans and rice for dinner every night.
She said her home, which she bought for $710,000, would have fallen in value to around $670,000.
She said not buying a place that stretched her to her maximum capacity turned out to be a good decision.
“I’m just going to try and get by and I can probably do that unless interest rates hit 10% then it’s going to be overkill.”
Interest rates are a priority for many borrowers right now, as the Reserve Bank is expected to raise the official exchange rate (OCR) on Wednesday by at least 50 basis points and likely 75.
Chris Tennent-Brown, senior economist at ASB, said this would not necessarily have an immediate impact on fixed mortgage rates as many had expected further increases in OCR.
“It will be more about the outlook and their actions – a 75 basis point hike and a really aggressive outlook could move fixed rates over the next few weeks, but wholesale markets and mortgage rate moves over the weeks have factored in an increase in OCR this week, and more next year.
He said he expected fixed rates to peak at “six highs to mid-seven” if the OCR stops where the market expects it, at around 5%.
Grace Brown, a Christchurch woman, said her mortgage had been split in two.
Half has already reduced its fixed rate from 4.9% to a variable rate of 7.34% and cost an extra $150 per fortnight. The other half will be fixed in December.
“I’m lucky to only take care of myself at the moment, I have a pretty low mortgage so I can handle the extra for a while.”
She said she was deciding whether to re-fix the floating portion now or wait until she could potentially seek a better deal on the whole loan from another bank.
Brown said she had considered buying another home and renting out her existing home, but rising interest rates meant she was no longer looking into the $800,000 price range, but rather into the top $600,000.
“I was going to rent out my current house and move to something a little bigger to have more space, but it doesn’t look like I’m going to get that.”
Another woman, Hana, said she had given up on her goal of building a house partly because of rapidly rising interest rates.
“We have a deposit and my parents have the land, but last month we decided we could no longer repay the loan we would need to build due to a combination of increased construction costs and interest rates. rising interest,” she said.
“When we started seeing numbers like 6.5% to 7% the amount we had to borrow to build – which was almost 50% more than when we started trying to build due to the increase in construction prices – was not usable for us at these rates. Also the fact that they probably hadn’t peaked yet was a big problem for us. We couldn’t really plan effectively and exactly what our refunds should be.
Gareth Kiernan, chief forecaster at Infometrics, said the most important aspect of the Reserve Bank’s announcement on Wednesday would be the tone it would take.
“The recent weaker-than-expected inflation outcome in the United States has seen financial markets begin to hope that Federal Reserve tightening is beginning to subdue cost and price pressures, potentially reducing the magnitude of further hikes. interest rates.
“Of course, we had a similar shift in sentiment a few months ago, only for the US inflation outcome the following month to be much stronger than expected, leading to a reversal in sentiment and significant stock market declines. , higher interest rate expectations, and large flows of investor funds into the US dollar.
“Over the past week or two, there has been similar speculation about how much more the Reserve Bank might need to raise rates here, tied to similar sentiment emerging from the United States. However , the reality is that there is virtually no evidence that inflation is starting to moderate here, so I would expect a relatively hawkish statement from the bank which could put upward pressure on wholesale rates and result in higher short-term fixed mortgage rates.
He said that would be supported by the Reserve Bank’s official cash rate projections.
“The August statement showed an OCR peak of 4.1% in the second half of 2023, a forecast that is now clearly exceeded. wholesale markets, but a forecast higher than that would again put upward pressure on fixed mortgage rates.
But he added that if the Reserve Bank was seen as taking too hard a line, it could also lead to lower wholesale rates in the longer term.
“Something like a harbinger of a recession as the slope of the yield curve turns negative. I think it would take a very hawkish statement or an OCR forecast to cause such a swing in market sentiment right now, but it’s a possible reaction to keep in mind, in which case rates fixed for three to five years would likely push lower, although it may take a few weeks to be reflected in rates. detail.
“I also note that longer-term wholesale rates have moderated by almost 50 basis points over the past two weeks. This decline implies that banks probably already have some leeway on long-term rates. term anyway and, if there’s nothing in the statement to get those rates back up and they stay around current levels, they might consider cutting the three to five-year rates by the start of december.