How high will mortgage rates go?

The latest inflation data gave the Reserve Bank (RBNZ) and economists a bit of a shock. At 7.2%, it was much higher than anyone had forecast, and it means the RBNZ is likely to be more aggressive with its official cash rate rises. A higher official cash (OCR) rate leads to higher mortgage rates. Home loan rates are already in the mid-5% range – how much higher are they likely to go?

A 5.3% OCR in 2023?

Current pricing suggests the OCR will peak at 5.3% in 2023, which would likely push mortgage interest rates over 6%. If you’re coming off a fixed-term interest rate that starts with a three, that is going to be a painful adjustment.

However, economic predictions are notoriously unreliable. Even if all the experts are confident in their forecasts, nobody knows what’s around the corner. It’s important to remember that you can’t time the market.

We may be reverting to the mean

Could it be that the low rates of the past decade are the outlier, and we’re going back to normal? It’s quite possible that we are just reverting to the long-term average of over 5%, according to one commentator. If that’s the case, over the next few years we might to adjust to home loan rates starting with a six or a seven, which was business as usual in the early 2000s.

What should you do?

When it comes to refixing, there are a few strategies to help you manage your loans more effectively. These include splitting them up across different fixed terms to help you smooth out the impact of rising interest rates, or using floating or offset loans to reduce debt more quickly. Your mortgage broker should be an expert in this, or we can recommend one.

If you’re facing a large increase in your mortgage repayments, you’ll need to look at ways to boost your business or personal income to maintain your outgoings. Alternatively, you can tighten your belt and find ways to cut your business or personal costs to help you meet the higher repayments. And for the best results, you can do both.

We can work with you to prepare your household and your business for a higher cost of debt – do get in touch, we’re here to help.