Most of New Zealand's major banks have increased their fixed mortgage rates over the past week amid high inflation forecasts.
In March last year, the average 5-year mortgage rate being taken out by borrowers was 3.78 percent - which has risen to 5.47 percent in February 2022.
Funding costs for banks are rising because of higher inflation expectations across the world. The banks are passing this on to borrowers, with ANZ, ASB and Kiwibank all increasing their fixed mortgage rates in the past week.
But Milford Asset Management senior investment analyst Frances Sweetman told AM mortgage rates should now start to stabilise - especially longer-term fixed rates.
"I think… we've seen them peak now or, at least, we should be around the peak," she said on Tuesday.
However, Sweetman said that could always change - depending on the global inflation situation.
"We have seen particularly big increases in the last month or two, in those market interest rates… that's because we've seen the Russia-Ukraine war that's seen all prices rise, we've seen employment remain incredibly strong, we've seen local inflation data that's been incredibly strong."
She said what happens next will depend on how quickly the economy slows in response to higher interest rates and how the Reserve Bank (RBNZ) responds. The RBNZ hiked the Official Cash Rate (OCR) from 0.75 to 1 percent last month and the central bank will next week announce whether it will increase again.
Sweetman said that because high inflation was currently driving fast interest rate rises, markets were pricing flat interest rates between two and three years ahead of time - aimed at cooling the economy so rates won't have to rise for a long period.
"Particularly for those longer-dated interest rates - we should start to see… the RBNZ bring the Official Cash Rate back down in those later years and that should mean that those mortgage rates, if anything, have the ability to fall rather than rise much further."
RBNZ forecasts show the OCR will move up to between 3 and 3.5 percent towards the end of 2024.