Hawke's Bay homeowners are being warned to brace for further interest rate hikes and prepare for bigger monthly repayments on their mortgages.

Yesterday the Reserve Bank raised the official cash rate (OCR) to 3 per cent in a move designed to cool the heated housing market and control inflation. It prompted economists to warn homeowners to prepare for further home loan interest rate hikes, following a previous quarter-point jump in March.

The latest rise comes amid new Roost home-loan affordability figures showing Hawke's Bay housing affordability fluctuated last month. The report measured the percentage of after-tax pay needed to service an 80 per cent mortgage on a median-priced house. Napier's home-loan affordability improved from 53.8 per cent in February this year to 51.6 per cent in March, compared with 48.1 per cent a year ago.

Napier's weekly after-tax pay for first-home buyers was $739.62, compared with $737.71 in March last year.


Meanwhile in Hastings, home-loan affordability worsened from 45.3 per cent in February to 46.8 per cent in March, compared with 48.9 per cent a year ago. The weekly after-tax pay for first-home buyers was $736.44, compared with $734.54 in March last year.

According to latest Real Estate Institute of New Zealand figures, the median house price in Hawke's Bay dropped $18,000 to $287,000 in the month to March. Nationally, housing affordability worsened at the fastest rate in more than 12 years. Kiwi homeowners now need nearly two-thirds of a median income to pay the mortgage on a $440,000 median-priced house - at 63.3 per cent up from 58.8 per cent last month.

Mortgage Link Hawke's Bay adviser Judy Steiner said banks were being competitive with fixed term mortgage rates.

"What I'm saying to my clients now is that they really need to be thinking about the long term. They need probably to split their loan and take advantage of the three-year rate and lock in [about] 70 per cent of the mortgage at that level.

"Have the balance on floating if they want to increase their payments."

Some clients had been scared by the hype around rising interest rates, but when viewed in the context of higher rates in previous years, current rates did not seem as dramatic. "These last three to four years have been extraordinarily good and some people have got lulled into thinking that's normal."

For first home buyers with an average loan of $210,000, yesterday's increase would add $8 to their weekly repayments - or two cups of coffee, she said.

"You've got to be realistic about the real numbers."

Some first home buyers were paying as much in rent as they would on a mortgage each week, she said.

Political reaction to the announcement was swift, with both Labour and the Greens protesting the flow-on effect to homeowners and buyers.

Labour's finance spokesman David Parker said New Zealand's interest rates were now among the world's highest, and the OCR rise was "another blow for middle New Zealand".

"It will add an extra $70 a month to a $500,000 mortgage or $50 a month to a $300,000 one, on top of last month's increase. "With the Reserve Bank tipping interest rates to go to 8 per cent, this is going to cause real pain for homeowners and will make the dream of home ownership unattainable for many more Kiwis."

Green Party co-leader Metiria Turei said the rise was a consequence of the Government's failure to get a grip on electricity prices and the property market, particularly in Auckland.