50-year lows now history
Short-term fixed mortgage interest rates have started rising, leaving homeowners facing a deeper delve into pockets.
The increases will spell the end of 50-year lows in interest rates and may shut some first-time buyers out of the market.
ASB bank has been the first of the major banks to raise interest charges, bumping up its six-month and one and two-year rates. The rest of the big lenders are expected to follow within days.
Christchurch mortgage broker Jeremy Meachem said he did not expect the low interest of the past few years would be seen again in his lifetime. He warned that with rates likely to reach 7.5 or 8 per cent, borrowers needed to plan ahead. "There's no two ways about the financial impact but not everyone has grasped that. Consider what your repayments could be in the future."
Meachem advised new buyers or those refixing to tie down deals for four or five years.
Banks would also be factoring higher repayments into affordability calculations, lending less to new borrowers, he said.
The increases follow the Reserve Bank's boost 12 days ago of wholesale rates, in line with a programme it began in March, which has already triggered a lift in floating rates.
ASB bank yesterday said it had increased rates for terms of up to two years, and scrapped special deals in longer-term categories. The rises also apply to ASB's Sovereign and Bank Direct brands.
HSBC bank and Kiwibank-owned NZ Home Loans have also bumped up short-term rates.
ASB's two-year interest rate rise from 5.99 per cent to 6.3 per cent would add $19 a week to repayments on a 30-year $400,000 mortgage, adding about $29,000 in interest repayments over the life of the loan.
Some longer-term rates, linked to global lending costs rather than Reserve Bank rates, have come down.
Christchurch economist Robin Clements expected short-term rates would climb for another 12 to 18 months. The rate of increases would likely slow after initial rises, he said.
He expected the rises would slow housing inflation by making buying harder but this would likely be outweighed by strong immigration and "Christchurch's own special circumstances" boosting demand for homes.
Clements said that for first-time buyers, banks restricting lending on affordability criteria could be offset by their recent loosening up of deposit requirements.
He advised borrowers to fix some or most of their mortgages "although the best time to fix would have been late last year".