Mortgage payments could rise by up to $50

AL WILLIAMS
Last updated 05:00 14/12/2013

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The average South Canterbury mortgage repayment could rise $50 to $75 a week if warnings of 2.25 per cent interest hike pan out.

The Reserve Bank held official interest rates at 2.5 per cent this week, but warned rates could rise 2.25 per cent over the next two years, with talk of the first increases in March.

Timaru broker Malcolm McDonald says many borrowers have moved from floating to fixed rates in recent months, with some institutions offering less than 5 per cent for one year.

However, interest rates could go higher if LVR restrictions don't have the required effect, he says.

"If we looked at the mainstream average floating rate of 5.74 per cent and added 2.25 per cent then an average mortgage of $225,000 set over a repayment term of 25 years may increase in monthly repayments from $1414 to $1735, or fortnightly from $652 to $800.

"For some people this may become a burden but if they keep clear of any major spending that involves taking on additional debt on what may well be luxury items, it will just make sure this doesn't affect how they pay their mortgage."

Timaru mortgage broker Gary Dobbs says a hike to 8 per cent will mean the difference of about $50 a week.

"A lift in rates will likely have more impact on those in the bigger centres; I do worry about people in Auckland."

Timaru chartered accountant Stephen McFarlane says interest rates will rise in 2014.

"What is unknown is the exact timing and how high they will go. The Reserve Bank suggesting 2.25 per cent over the cycle seems like a reasonable estimate.

"For a borrower owing $100,000, every one per cent increase will cost them an extra $83 per month."

One year rates were lower than floating rates in many instances, but the question remained on where rates would be one year from now and whether borrowers might have wanted greater certainty by taking two or three-year rates.

"Rising interest rates make buying more expensive and our natural inclination as borrowers is therefore to be more cautious; you would expect that to take some pressure off house prices," Mr McFarlane said.

"But there are other factors such as population growth, immigration and a supply shortage, so the direction of house prices is not clear cut."

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- © Fairfax NZ News

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