Despite the Official Cash Rate (OCR) being on hold, a leading economist says Kiwis with mortgages should not expect interest rates to fall anytime soon.
It comes after the Reserve Bank of New Zealand (RBNZ) held interest rates for the second time in as many months in September at 5.5 percent - having lifted it by 525 basis points since the end of 2021 in a bid to tame skyrocketing inflation.
Infometrics Principal Economist Brad Olsen told AM on Monday we've been seeing the risk of inflation remaining higher for longer across the globe.
"We'd been expecting that perhaps that was likely to see further mortgage rate increases cease or at least be a lot more limited, but we've been seeing across the world still that risk of inflation remaining higher for longer, but not necessarily at those high peaks," he said.
Olsen told AM co-host Melissa Chan-Green banks are also facing higher costs, which are then passed back to Kiwis with mortgages.
"There's still a lot of worries around rent increases and similar that's seen longer-term interest rates, which is effectively the mortgage rates that banks themselves borrow at, they've increased with the likes of US ten-year bond rates now at a 16-year high. Now, if it's costing the bank more to borrow, then of course they are looking to pass some of that cost on to their own mortgage holders and that seems to be keeping quite a lot of pressure coming forward," Olsen explained.
"Since the Official Cash Rate from the Reserve Bank has been on hold, you've seen nearly, I think, an extra 0.5 percent added to the average one-year fixed mortgage rate.
"So the Reserve Bank's almost got two extra OCR hikes without having to do anything and what it continues to suggest is for a lot of mortgage holders who might have been expecting not too much more on the interest rate front, there are risks that people's mortgages do continue to get more expensive."
The OCR has been increasing since October 2021, which has led many Kiwis with mortgages to ask when will the pain be over, with Olsen not having good news.
"People have been looking at their mortgage rates, looking at bond rates and every other number out there and going when does it end and more importantly, when do not only things stop going up, but maybe when do they start coming down?
"The fact they have continued to rise for so much longer, we are a lot closer to the end of 2023 now of course suggests it might well be more the end of 2024, maybe even 2025 before banks start to cut those interest rates.
"So still, I think quite a long-term period of real challenge for a lot of households. Not everyone has got a new house and is seeing those higher mortgage rates hit them, but for those groups of people who have got a new house in the last couple of years, they are really feeling it," Olsen said.
Watch the full interview with Brad Olsen in the video above.