Within hours of the Reserve Bank raising the official cash rate this morning, banks had moved to raise mortgage rates too.
The Governor says the increase is necessary to manage inflation in the our expanding economy, but not everyone agrees.
Homeowner Keri Mills is concerned what it will mean for her budget and is unsure whether to break her current fixed term mortgage.
"I don't know whether to break it now and get in while it's still lower because my mortgage comes off at the end of the year, or suck it up and wait until November and just go with it," she says.
Ms Mills isn't alone - three quarters of all homeowners have floating mortgages or are fixed for less than a year.
The Reserve Bank raised the cash rate 25 basis points to 2.75 percent - Governor Graham Wheeler explaining why.
"This is needed to help contain rising inflation pressures associated with the strong economic expansion that is becoming increasingly broad-based," he says.
Among the drivers are dairy prices, which are up 43 percent in the last year, low interest rates, a 40 percent jump in residential investment over the last two years and massive investment in the Christchurch rebuild.
Rising migration is also boosting housing and consumer demand, but there's already been some moderation in the housing market.
"[Loan-to-value ratio] restrictions are starting to ease pressure and rising interest rates will have a further moderating influence," he says.
Today's announcement means on a $500,000 mortgage over 20 years, an increase from 5.75 to 6 percent means repayments will jump $33 a fortnight - and there's more to come.
"Previously they'd looked at the interest rate rising by 2 percent over two and a bit years, they're now looking at it rising 2.5 percent over the next three years," says economist Bernard Hickey.
But one economist says inflation isn't enough of a concern for rates to go up.
"Our focus should be on building capacity and building an economy, why are we so concerned inflation might tick up, even heaven forbid it might get to 2.5 or maybe even 3," says BERL economist Ganesh Nana.
New Zealanders have around $180 billion in mortgages lending, so rising rates mean homeowners will feel the squeeze but, there's an upside.
New Zealanders also have $130 billion in savings, so those with term deposits should finally start to see a decent return.
3 News
source: newshub archive
