Inflationary shock could hit mortgage holders hard and soon

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Mortgage lenders may not have to wait long to feel the impact of inflation exceeding expectations.

Derek Flynn / Stuff

Mortgage lenders may not have to wait long to feel the impact of inflation exceeding expectations.

Homeowners could start paying the price for higher inflation sooner rather than later, says the nation’s largest bank.

The ANZ expects inflation to hit 5.8% early next year and the official spot rate of 2% in August.

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

The annual yield on 10-year government bonds has jumped about 30 basis points over the past week, topping 2.3%.

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The move in financial markets has increased the risk of real estate market dynamics turning sharper than expected and reversing more sharply than expected, the bank said.

The ANZ raised its inflation and interest rate forecast following Stats NZ’s announcement of a sharp rise in annual inflation to 4.9% on Monday.

Chief economist Sharon Zollner caused a stir in March when she warned that just 1% mortgage rate hike would cut the disposable income of Aucklanders by 5%.

The latter figure would be around 3 percent in the rest of New Zealand, she then calculated.

Former Reserve Bank chief economist John McDermott explains how inflation is measured and how it manifests.

ANZ now predicts that the Reserve Bank will increase the OCR in six steps by 25 basis points, increasing the OCR at each of its schedule revisions in November, February, April, May, July and August.

Other forecasters believe the Reserve Bank could hike the rate by 50 basis points to 1% when it next revises on November 24.

Part of the reason is the relatively long delay before its next review scheduled for February.

The BNZ assesses the chances of a double hike in November at “50:50”, saying the central bank is “now well and truly behind the curve” in pursuit of inflation.


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