Higher mortgage rates are on the way next year, and borrowers can expect to see rates probably about 2 percentage points higher by early 2016.
An extended series of rate rises will happen as the economy picks up steam, with a building boom and still rising house prices.
Economists expect official interest rates to start rising in March or April from 2.5 per cent now, reaching 4.5 per cent in late 2015. This implies floating mortgage rates moving to about 7.5 per cent or so.
But the Reserve Bank also says house price rises are close to peak and should ease from about 10 per cent a year now, to just 4 per cent by the end of next year.
In part that reflects the impact of new speed limits on low deposit home loans being brought in officially next month, which are assumed to cool the rate of house price rises by about 2.5 per cent.
The limits on lending to borrowers with less than a 20 per cent deposit are assumed to be worth about a 30 basis point rise in interest rates.
Increases in official interest rates would "likely be required" next year, the Reserve Bank said in a blunt warning yesterday.
Over the next couple of years, 90 day interest rates were projected to be about 50 basis points higher than expected just three months ago. That reflected a more robust outlook for the economy, with household spending, net migration and commodity export prices all higher than expected in June.
Rates would have been even higher without the new limits on low-deposit home loans, perhaps 80 basis points. From about 2.6 per cent now, short-term interest rates are projected to keep rising to 4.7 per cent by early 2016, a rise of 200 percentage points.
That suggests official interest rates will keep rising 25 basis points for each quarter over the next two years, starting in March or April. That would take rates to 4.25 per cent by the end of 2015.
But Infometrics economists said the Reserve Bank was still too conservative about how fast the economy was recovering.
The central bank yesterday left official interest rates steady at 2.5 per cent.
Governor Graeme Wheeler said the extent and timing of the rise in interest rates next year would depend largely on the degree to which the momentum in the housing market and building sectors spilt into broader demand and inflation pressures.
With the new high loan to value limits coming in next month, a number of banks had already increased the premium they charged for people with a low deposit.
"And that's helpful," Wheeler said.
While the Government was concerned about the impact on the speed limits on first-home buyers, Wheeler said they made up 40 per cent of borrowers with a low deposit. "That's too much to exempt."
ASB Bank chief economist Nick Tuffley said they expected rates to be on hold till March 2014.
Westpac chief economist Dominick Stephens said the Reserve Bank was "moving ever closer to hiking the OCR". It was right that the Reserve Bank should warn people "that a period of higher interest rates is coming", he said.
ANZ Bank expected the Reserve Bank to "nudge" rates up in the first half of 2014 and more in 2015. It pointed out that the Reserve Bank's new projections for short-term interest rates were not as high as those already priced into the market.
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