When floating ends in sinking

Experts are warning homeowners with major mortgage debts could "come unstuck" as interest rates move higher for the fourth time this year.

The Reserve Bank lifted the official cash rate to 3.5 per cent yesterday, which was passed on in full by ANZ within an hour of the announcement.

Other banks are likely to follow quickly, pushing floating home loan rates up by a full percentage point since March.

Homeowners collectively owe $64 billion in floating mortgage debt, although that figure is falling as more people move to fixed loans.

For someone with a 30-year mortgage, the changes add an extra $65 to the monthly repayments on every $100,000 of debt.

Margaret Elsworth, president of the Federation of Family Budgeting Services, said even middle-income families would be struggling to handle the increased expense.

"It's going to be tough for them," she said.

People tended to sacrifice putting food on the table over other expenses like rent, mortgage payments, utilities or Sky TV, she said.

"We find quite often that the food is just about the last thing in the budget," said Elsworth. "I think the food banks are probably getting a bit of a hammering at the moment."

She encouraged struggling borrowers to see a budget adviser, who could help with spending adjustments and even negotiate payments with creditors.

"We'd much prefer people to come and see us before it gets too tough."

Wellington mortgage broker Simon Rule said some borrowers would be over-committed, especially in the Auckland market.

"On a mortgage of say $600,000 or plus, that has a massive increase," he said. "People will come unstuck."

The silver lining in the Reserve Bank's announcement was that it has signalled a pause as it assesses impact.

Economists expect the reprieve to last until December or possibly into next year, giving home-owners time to prepare for further increases.

In the meantime, Rule encouraged mortgage holders to start making extra repayments.

"These rates are still relatively low in the grand scheme of things. The more you can afford to pay now, the better off you'll be in the future," he said. "But not everyone can afford to do that, unfortunately."

Rule said anyone looking at buying a house should test if they could afford the mortgage payments if interest rates hit 8 per cent. "If you can't, you need to think about this long and hard."