Why your mortgage (and other bills) look set to skyrocket

Thursday, 7 May 2026

Economists warn of a tough 2026 as Middle East conflict drives up fuel costs, leading major banks like ANZ to lift mortgage rates. Reserve Bank Governor Anna Bremen says the focus is now on securing safe transit for vital exports.

Analysis: Even in good economic times, we’re still running up a downward-moving escalator. The ever-present impact of inflation means we have to move at least as fast as the escalator just to stay in the same place.

In a solid economy where jobs are plentiful and wages are growing, you can expect to be given the odd adrenaline shot (a pay rise) that helps you move faster toward your longer-term wealth goals, such as paying off the mortgage or putting more away in KiwiSaver.

But that’s not what’s happening right now.

Labour stats out this week showed wage growth is subdued and unemployment remains stuck at 5.3%. Businesses aren’t growing, so they aren’t hiring.

At the same time, inflation is hitting households across the country, squeezing value out of every dollar we earn.

This combination of low growth (stagnation) and high inflation is called stagflation. This is a 'quiet wealth killer': a rare, toxic cocktail of a stalling economy and skyrocketing costs that leaves households with nowhere to hide and little money to save.

Most local experts agree we aren’t yet in a full-blown stagflation (as seen in the 1970s), but things are far from rosy.

ASB senior economist Mark Smith is expecting inflation to hit 4.5% this year and hang well above 3% until at least the middle of 2027.

Homeowners would do well to pay attention to this because it means we’re likely to see Official Cash Rate (OCR) hikes earlier than initially anticipated.

Smith now expects the first OCR hike to happen in July, expecting the rate to rise from its current 2.25% to 3.25% at the end of the year. The next announcement is due on May 27.

A perfect storm of the US-Iran war, surging oil prices and rising domestic costs means ower interest rates are well and truly behind us now.

The nation’s savers will be pleased to see those interest rates tick up, but it means mortgages will become more expensive for homeowners.

Not just a token hike

Jeremy Sullivan, investment adviser at Hamilton Hindin Greene, says markets are already pricing in OCR hikes at a wholesale level (which determines the cost banks pay to access money they lend to homeowners).

“This is not just one token hike,” he says.

“Markets are now pricing a reasonably steady tightening cycle… It effectively has the OCR moving to around 2.5% by July, 2.70% by September, just over 3% by December and around 3.6% by mid-to-late 2027.”

Jeremy Sullivan says interest rate hikes are already being priced into wholesale markets.

This is already increasing the costs of our medium- to longer-term fixed mortgage rates (two- to five-year terms), but each of those rate hikes will ultimately hit Kiwis on floating mortgage terms as they flow through.

Banks typically maintain a margin of roughly 2.0 percentage points to 2.3 percentage points above the OCR for their floating products. Sullivan’s pricing suggests floating rates could hit 7.51% by late 2027.

That’s equates to an extra $425 sucked out of the family budget every month by late 2027. That’s not just a rounding error. It’s the entire weekly grocery bill or the cost of a child’s extracurriculars, simply gone.

It’s also important to remember that these cost increases will flow through earlier for those on fixed rates, because they are priced into the local market in advance of OCR spikes.

Sullivan does not expect rate hikes to be too aggressive at the start, with the Reserve Bank keeping initial increases at 25 basis points to avoid crushing the economy.

“But if inflation expectations lift, or if fuel, electricity, rents and insurance keep feeding through into wider pricing behaviour, then the RBNZ may have to move faster than it would like,” says Sullivan.

‘Exquisitely skewered’

This all leaves the Reserve Bank in a position that Westpac chief economist Kelly Eckhold described as “exquisitely skewered” in recent weeks.

The Reserve Bank needs to get on top of that homegrown inflation, but needs to do it in a way that doesn’t derail our economy entirely at a time when global events are contributing to higher petrol prices at the local pump.

But this isn’t only about petrol.

Satish Ranchhod warns price rises extend well beyond fuel.

Westpac senior economist Satish Ranchhod warns rising council rates and power charges will force homeowners to pay more just to keep the lights on.

According to the Electricity Authority, the average New Zealand household is seeing an 8% increase in their power bills this year – but this is on top of a similar increase last year, meaning those energy prices are significantly higher than they were 24 months ago. If your monthly bill was $200, an 8% increase adds about $16 a month (roughly $192 a year). If you combine that with the 2024 increase, you’re likely paying nearly $400 more per year than you were two years ago.

Business owners are in a similar position and will eventually have to pass these rising costs onto Kiwi shoppers, which once again means the average Kiwi is set to take a hit.

This is about the immediate cost of living, but it’s also about the longer-term picture. All the ground and speed lost during this stagflationary period essentially pushes our timeline out a bit further or forces us to run faster than we already are.

Most Kiwis right now don’t really have the option of running much faster.

In the meantime, all we can do is keep running for a bit longer and hope we have a decent safety net (emergency funds or KiwiSaver) to catch us if we trip along the way.

So how are you feeling on the escalator at the moment? What concerns you most about where the economy is headed? Let us know in the comments section below.