29 Jul 2011

Mortgage rate rises likely - analyst

9:48 am on 29 July 2011

Record low mortgage rates would end sooner than expected if the Reserve Bank raises the official cash rate in September.

Many economists are predicting the cash rate to rise from the present 2.5% to 3% in September, prompting banks to raise their interest rates.

The Reserve Bank on Thursday said the economy has bounced back sooner than expected, and, while leaving the Official Cash Rate on hold, signalled that it intends to remove the emergency cut introduced in March after the Christchurch earthquake.

TD Securities senior strategist Roland Randall is picking the official cash rate to rise in September, but says rates will then stay on hold until early next year.

He expects both floating or one- to two-year fixed rates to move up much in line with the OCR, and variable mortgage interest rates to continue to climb steadily over the next two years.

Mr Randall says rising inflation could creep up forcing the Reserve Bank it to raise the cash rate sooner than it expects.

A mortgage broker, Christine Lockie, an Official Cash Rate increase is expected to push up interest rates before the end of the year.

She says her firm is telling clients to consider fixing at least half of their mortgage if they are planning to sit on a large amount of debt in the long term.