Inflation shock may hit mortgage holders hard and soon

Tuesday, 19 October 2021

Mortgagees may not have to wait long to feel the impact of inflation surging past expectations.

Home-owners may start paying a price for higher inflation sooner rather than later, the country’s biggest bank believes.

ANZ is tipping inflation will reach 5.8 per cent early next year and the official cash rate 2 per cent in August.

But the bank also warned a “dramatic increase in wholesale swap rates” on Monday meant there was now “real pressure” for mortgage rates to rise further “before long”.

The annual yield on 10-year government bonds has jumped about 30 basis points over the past week, soaring above 2.3 per cent.

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The movement in financial markets increased the chance that housing market momentum could turn more sharply than forecast and flip more abruptly than expected, the bank said.

ANZ upped its forecasts for inflation and interest rates in the wake of Stats NZ reporting a steep increase in annual inflation to 4.9 per cent on Monday.

Chief economist Sharon Zollner caused a stir in March when she warned that only a 1 per cent rise in mortgage rates would slash 5 per cent off the disposable income of Aucklanders.

The latter figure would be about 3 per cent in the rest of New Zealand, she calculated then.

ANZ is now forecasting the Reserve Bank will increase the OCR in six steps of 25 basis points, raising the OCR at each of its schedule reviews in November, February, April, May, July and August.

Some other forecasters believe the Reserve Bank could raise the rate by 50 basis points to 1 per cent at its next review on November 24.

That is partly because of the relatively long gap before its following scheduled review in February.

BNZ is putting the chances of a double-hike in November at “50:50”, saying the central bank is “now well and truly behind the curve” in chasing down inflation.