Westpac predicts interest rates to go up in November, gradual increases from there

Westpac believes the Reserve Bank will first raise interest rates in November, with more gradual increases after that.

House prices have been driven up by record-low interest rates - falling to 0.25 percent as the COVID-19 pandemic unfolded. New Zealand investors, as a result, saw property as a safe investment - sending house prices through the roof.

While the Official Cash Rate (OCR) was previously picked to go up next year, major banks have since brought those predictions forward to the end of 2021. 

Westpac acting chief economist Michael Gordon says interest rates won't need to rise too much to have a meaningful impact on the housing market.

"I think we'll see some gradual increases," he told The AM Show on Monday. "The most recent time we've had mortgage rates rising was not a cash rate move - but we had mortgage rates starting to rise from late 2016-17 - that was more due to global forces and that really put the brakes on the housing market."

Real estate concept. House on calculator. Mortgage. 3d
Photo credit: File

An OCR increase of between 1 and 1.25 percent would cost the average borrower $4000 per year, experts have said.  

"An important thing to keep in mind is we are carrying quite high levels of debt these days so a little will probably go a long way in terms of interest rate hikes," said Gordon.

"We don't necessarily need to go particularly high."

The Reserve Bank will make its next OCR announcement on Wednesday.