Mortgage rates expected to be at 4% plus within a year

The economists say although mortgage interest rates are heading upwards, the peak this cycle will be historically low with future increases roughly on par with the magnitude of OCR hikes – about 125 basis points (bps).

This takes interest rates back to just over 4%, which is close to the bank’s assessment of where interest rates would have more of a balanced impact on household spending.

Even at this level, the bank says household debt servicing looks to be manageable and households in aggregate should have a reasonable buffer to cope with modestly higher mortgage interest rates.

Many households maintained their debt repayments at a time of falling mortgage rates, paying off additional principal and building up a larger buffer.