Jump in mortgage repayments likely soon
Mortgage holders should start bracing for pain, as a rise in official interest rates could come as soon as the end of the month.
Inflation data released this morning showed the consumer price index hit 1.6 per cent in the 2013 year.
That included a surprise 0.1 per cent rise in the December quarter, defying the Reserve Bank and market forecasts of a 0.1 to 0.2 per cent drop.
The data has caused economists to adjust their forecasts for the next official cash rate (OCR) rise, which strongly influences home-loan rates.
ANZ is now predicting the central bank will bump up the OCR at its review on Thursday next week.
"We think the official cash rate needs to move sooner as opposed to later and are now actively calling a hike in January," senior economist Mark Smith said.
Even small changes to mortgage rates can have a dramatic effect on debt servicing, particularly to those who have borrowed with little equity.
An increase in the floating rate from 5.75 per cent to to 6 per cent raises total monthly repayments on a 30-year mortgage by $16 for every $100,000 of debt.
Westpac chief economist Dominick Stephens said the case for a hike in March, the previous market consensus, was "absolutely sealed".
"We're currently considering whether January's on the cards or not," he said.
"There's always a chance - and the chance went up today."
Stephens said Westpac was expecting five OCR hikes throughout the course of 2014, which would take it from its historic low of 2.5 per cent to 3.75 per cent.
ASB chief economist Nick Tuffley held firm to a forecasted March hike, but increased the chances of an earlier move to about 25 per cent.
The Reserve Bank faced a "tough balancing act" between managing inflation pressures and keeping the exchange rate under control, he said.
If the central bank did move earlier than it had signalled, the rapid shift in its stance was likely to send the New Zealand dollar even higher, Tuffley said.
Kiwibank has also kicked off the latest round of incentives, encouraging mortgage holders to switch banks.
The state-owned bank is offering $2014 cash and free refinancing to those who have at least 20 per cent equity and $50,000 of new lending.
The country's biggest bank, ANZ, is offering up to $1500 cash for new borrowers with 20 per cent equity and $250,000 of lending.
And Bank of New Zealand recently launched a credit card which gives mortgage holders a low 5.99 per cent interest rate, or a special balance transfer rate of 1 per cent for a year.