Floating mortgage interest rates look set to remain at near 50-year lows for at least the first half of this year, but the outlook starts to look cloudy in the second half, economists say.
Market expectations are for the Reserve Bank to start tightening towards the end of this year or early in 2014, and for the wholesale interest rate market to start pricing in rate hikes in the preceding months.
Floating rate mortgage rates currently sit at around 5.70 per cent. According to Reserve Bank data, the last time rates were at these levels was in February, 1964.
"In general, we do not expect interest rates to rise very much this year, but over the next three to four years interest rates will be much higher than they are today," Shamubeel Eaqub, principal economist at the NZ Institute of Economic Research (NZIER), told APNZ.
Eaqub said much of the outlook for interest rates would depend on what happens in the troubled economies of Europe and the United States.
"There is still a lot of political gridlock in solving issues that have been plaguing the global economy," Eaqub said. "That has a knock-on effect on what is going to happen in China and Australia, which in turn has a big impact on us," he said.
ASB Bank chief economist Nick Tuffley expects interest rates to remain low this year and for the Reserve Bank to leave its official cash rate on hold until at least the end of the year.
At just 2.50 per cent, the rate still reflects the emergency settings set in place post the global financial crisis and the 2011 Canterbury earthquake.
The bank's next rate call is on January 31.
In its monetary policy statement issued in December, the bank forecast 90-day bank bills - from which much of bank mortgage lending is derived - to remain unchanged at just 2.7 per cent throughout this year against today's rate of 2.65 per cent.
Tuffley says he expects floating rates, and some fixed term rates, to remain low for "a fair chunk" of the year.
Floating mortgage rates have been the norm for the majority of borrowers over the last few years, but Reserve Bank data shows a tendency for home-owners to take on more fixed term borrowing in recent months.
Westpac market strategist Imre Speizer said he expects a subdued interest rate market in the first half, but that the second half may prove to be more lively.
Economists at Westpac expect the Reserve Bank to start hiking rates in September. If that proves to be the case, it will be the first rate hike since July 2010.
"If we are correct, the market will pre-empt it by many weeks, which means that rates could start rising in the market place by the middle of the year," Speizer said.
"I would not go so far as to say that borrowers will be sitting on low floating rate interest rates for the whole of this year," he said.
BNZ economist Craig Ebert said borrowers would need to think further ahead than just the coming year.
- APNZBy Jamie Gray Email Jamie