Mortgage Broker Says Most Homeowners Won’t Take Huge Shock If Interest Rates Rise

A mortgage broker believes most homeowners won’t suffer a huge shock if interest rates are raised to fight inflation.

Photo: 123RF

Inflation has hit a 30-year high of 5.9% and is expected to go even higher this year, which will cause the Reserve Bank to steadily raise the official exchange rate (OCR) throughout the year to from next month.

Economists choose the benchmark rate to reach between 2 and 3%, which directly affects borrowing rates.

But John Bolton of mortgage broker Squirrel said banks had already priced OCR increases into their existing interest rates.

A 3% OCR would likely result in floating mortgage rates similar to the long-term rates offered today, he said.

“I think for the owners, it’s not that [floating] the rates are currently 4 or 5% and they could go up to 7%.

“The reality is that short-term rates are around 3.5%. People who have been fixing for two years are probably fixing around 4.5% anyway and we don’t really expect rates to change. a lot about that.

“What you’re going to have there is all this talk about increasing OCR, but what people need to understand is that it’s already mostly built into fixed rates.”

Bolton said people coming out of low fixed interest rates should adjust to higher rates.

“It’s clear that rates have come down to 2% over the past couple of years. As they come out of fixed rates – and obviously in a higher rate environment – that’s going to take a bit of tightening. the belt.”

Bolton said the belt tightening was a normal response to any interest rate hike.

“The challenge is for those who were hoping that interest rates would stay around this level for much longer and that clearly hasn’t happened.”

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