Squeeze on mortgage holders deepens

Given the evidence inflation is proving tougher to stamp out than was previously expected and more OCR increases are in the pipeline after February next year to a 5.5% OCR, floating rates are expected to rise shortly and fixed rates are unlikely to have peaked either, says Kelvin Davidson, CoreLogic’s chief property economist.  

“After some ‘green shoots of optimism’ had started to emerge through the first half of October, the stubborn inflation reading has in some ways pushed the country into ‘phase two’ of the property market downturn,” he says.

Based on the existing average fixed mortgage rate across the stock of loans of 3.8%, the fortnightly mortgage repayment for every $100,000 of debt (30 year term) is around $215 – or roughly $5,590 per year. But somebody then refinancing to a current rate of 6% would see that repayment jump by $1,602 per year – or more than $8,000 if they had a $500,000 loan.

A potential future rate of 7% would see a change of almost $12,000 for a $500,000 loan. On that note, it’s important to point out 20% of home loans are fixed but due to reprice in the next six months.