Mortgages set to hit 8.75pc

Reserve Bank governor Alan Bollard raised the official cash rate to 5.75 per cent from 5.5 per cent yesterday, and banks are now expected to lift floating rates to 8 per cent.

Westpac was first to move, raising its floating rate by .35 of a percentage point to 8.1 per cent last night.

"Further increases" in interest rates looked likely to be needed in the year ahead, Dr Bollard said. The bank's own projections suggested a risk that floating mortgage rates could go to 8.5 per cent next year.

On a 25-year $100,000 loan, the expected rate rise would lift weekly repayments by about $4 – about $200 a year – but if the rate reached 8.75 per cent it would add about $600 a year.

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