What the increase to Official Cash Rate will cost average Whanganui mortgage-holder

Increases to the Official Cash Rate are expected to increase the average Whanganui mortgage by $51 per week. Photo / Bevan Conley

The average Whanganui mortgage is set to go up by about $50 a week following the increase in the Official Cash Rate earlier this week, according to one mortgage advisor.

The reserve bank hiked up the OCR by 0.75 per cent to 4.25 per cent, forecasting it to peak at 5.5 per cent midway through 2023 after previously forecasting a peak of 4.1 per cent.

Whanganui resident Jess Richards has had a fixed-term mortgage for nearly three years.

She said she had been expecting the OCR to increase due to the current economic climate.

As a single mother with an 11-year-old son, she said she would have to reassess her spending with more of her weekly income going into servicing her debt.

That would put added stress on her both financially and mentally.

“I’m pretty good with money anyway but owning a home on my own as it is, I’m really proud of myself [for that] but at the same time it’s a lot to do on my own, to be managing a mortgage and all the maintenance and general stuff that comes with owning property,” she said.

Richards recently had to renegotiate her mortgage, which already had increased significantly, but she expected more pain to come.

“Once this current rate comes up to expire I know that it’s gonna be another significant increase so that’s definitely going to have an impact in terms of my weekly budget.”

Whanganui independent mortgage advisor Aaron Stampa said according to his calculations this would mean the average floating term mortgage in Whanganui of $350,000 increased by $51 per week.

He had been expecting the increases for the last few weeks.

“It was widely publicised for probably six or eight weeks that it was going to go up so it was more of a formality yesterday,” he said.

He had already been preparing his clients over the last few weeks by quoting their mortgage rates at 0.75 per cent higher than the current rates were which he said was done to be realistic with them.

“There’s nothing worse than giving someone an indication of their mortgage payments and then they come back six weeks later when they’ve settled on their new house and their mortgage payment’s already gone up.”

He expected floating-rate mortgages to increase in the next week.

However, people’s fixed-rate mortgages would not change for the rest of the term they are locked in.

“If they’re fixed, nothing will change, their fixed rate remains the same until they come to the end of their fixed term.

“So if you’re on a three-year fixed rate and you only fixed it yesterday, you’re fine for the next three years at that rate,” Stampa said.

The reserve bank also announced the two-year swap rate would increase to 5.3 per cent, while the 10-year swap rate would increase to 4.55.

The increase in the two-year and 10-year swap rates would determine how much fixed-term mortgages would increase, but Stampa said it wouldn’t be known by how much until next year.

Jess Richards has had a mortgage for nearly 3 years and said an increased mortgage would put extra stress on her life as a single mother. Photo / Supplied

Stampa said he was 50/50 on whether the increased rates would make people more apprehensive about taking out a mortgage.

“It will stop some people, some will just keep looking for houses and buy houses because they would much rather pay their own mortgage, even if it’s at a time where interests are high, they’d rather pay their own mortgage than pay someone else’s if they were renting,” he said.

From his experience, there were still many people in Whanganui looking to apply for mortgages.

“It’s not as busy as it was 12 or 18 months ago but there’s still good inquiry, it certainly hasn’t gone flat and dead ... there’s still buyer enquiry,” he said.

The reserve bank recognised that such aggressive interest rate hikes would likely cause a recession in 2023 and see basically no financial growth through 2024.

The bank equally foresaw job losses escalating, possibly to the point where labour market conditions would fall below their maximum sustainable level for a time.

Venter & Hull Chartered Accountants director Darren Hull. Photo / Supplied

Venter & Hull Chartered Accountants director Darren Hull said he wasn’t surprised by the rate increases, but he was surprised by how bleak the bank’s financial forecast for the next two years was.

“For me, it was a little bit of a surprise how bleak that outlook was and I think if I’m correct ... [Reserve Bank governor] Adrian Orr was recommending that people think hard about spending dollars and making commitments,” he said.

The bleakness of the outlook and the increasing amount mortgages will take up of people’s daily income may have blowback on the retail market, with people less willing or able to spend going into the Christmas season.

“With all the other inflationary issues people have had, groceries, fuel, it obviously adds to people’s pressure.”

He said potential job losses if the economy were to fall into recession may weigh on people going into 2023 as well.