Sir John Key's predicted mortgage rates could spell 'unwinnable election' for Labour, Patrick Gower predicts

It could be an unwinnable election for Labour after predictions mortgage rates may hit at least 7 percent next year, Patrick Gower has predicted.

Former Prime Minister Sir John Key appeared on AM on Tuesday and forecast mortgage rates will "have a 7 in front of them" into 2023. His comments came amid a spike in mortgage rates in recent weeks, as the Reserve Bank (RBNZ) continues to increase the official cash rate in a bid to curb inflation.

Sir John, who is now the chairman of ANZ New Zealand, said the RBNZ had a tough job to "slay the inflationary dragon" and interest rates would rise further, as a result.

"Our economists think base rates - the official cash rate - [goes to] 5.75 percent," he said.

"I think we're going to have floating rates [stress-tested at] very close to 10 percent - I think people will be writing mortgages [at]… you've got to believe they're going to have a 7 in front of them."

Responding later on Tuesday, Gower, who is a Newshub national correspondent, said politics is "all about numbers", and Sir John's prediction is "really quite terrifying" for the Labour Government.

"That is going to cause an incredible amount of pain to your centre voter. Centre voters decide the election," he told AM.

"[Labour] have been in a huge quagmire and it's numbers like mortgage rates at 7 percent… this could actually potentially be an unwinnable election for them."

Political commentator Trish Sherson, who appeared alongside Gower on Tuesday morning, said New Zealand went through a period of "helicopter parenting" through COVID-19 where no one could feel any financial pain, so money was pumped out to hold the economy up.

"There is, politically, nothing you can do around what the Reserve Bank is probably going to keep doing into next year," she said. "So it's a very tough spot for the Government. Not only that, they can't go on a spending spree in the Budget next year. 

"So not only are there no rabbits, there's no hat to pull any rabbits out of."

Patrick Gower and Trish Sherson.
Patrick Gower and Trish Sherson. Photo credit: AM

Sherson said the start of "helicopter parenting" from the Government began when they said they wanted to help out first-home buyers. She said voters were sold "an absolute pup" the Government would do all it could to help people into their first homes.

"I'm not saying that's not an important thing for a lot of people but there was a dream sold that also helped pump up the housing market. You had all sorts of grants for first-home buyers," Sherson said.

There are multiple grants available from Kāinga Ora, including loans, rent-to-buy schemes and KiwiBuild.

But Gower said the economy may not be fixed if the election goes the National Party's way.

"Maybe the dad is not going to fix it if the dad is Christopher Luxon. Just because you're angry at mum doesn't mean you can just go around to dad's and everything is going to be better," he said.

"But I think voters don't see things that way and that's what it comes down to. Voters aren't forgiving when they get into the ballot box."

After pivoting to talking about Prime Minister Jacinda Ardern and her performance in interviews this year, Gower said her best appearance was on AM on Monday.

"She actually talked quite reasonably… [saying], 'We're going to clear the decks a little bit next year,'" Gower said.

"That kind of communication yesterday, sadly, in her last interview of the year, actually looked like a Prime Minister who was ready to lead us. It just might be too late."

Ardern has previously spoken on how the Government can pare back some of its reforms and, on AM on Monday, said she's made a broad request to ministers to look at areas they could cut back on.

"It's premature to speculate on any specific areas but I do expect there to be areas where [we would be] paring back," she said.

"We have already undertaken exercises like this when it comes to spending reprioritisation, we've already reduced our amount of spending as a Government, really focusing in on areas of services people value - healthcare, education - and looking as we come out of that post-COVID recovery to make sure that we are trimming ourselves as a Government as well."