Household mortgages will increase by up to $40 a week, according to interest rate forecasts by Finance Minister Bill English in Tauranga last night. Mr English said interest rates were likely to increase by nearly 1 per cent by the end of the year. He cautioned the Reserve Bank about pushingthe rates too far too quickly, suggesting the OCR would reach 3.25 per cent by Christmas. It would mean that mortgage rates would climb to about 6.5 per cent for floating, 7 per cent for one-year term and 8 per cent for two years. Mr English said the OCR was at a 40-year low of 2.5 per cent and "it's going to increase." Tauranga mortgage broker Mike Williams, of Rothbury Financial Services, said a 1 per cent increase on an average new mortgage of $275,000 over 30 years was an extra $172 a month, or nearly $40 a week. The impact on a $150,000 mortgage with 20 years to go was an extra $84 a month or nearly $20 a week. Mr English said the normal OCR level was 4.5 per cent but "we want to make it less of a vicious cycle than last time". When interest rates got high before, they pushed the NZ dollar up and this nailed the export sector, Mr English said. "We don't want the rates to go up as far (this time) and have as big an impact on the exchange rate." Mr English said New Zealand's economic recovery still faced headwinds. Europe and Britain were likely to have another round of banking problems and a couple of countries were going broke, with Greece likely. "The people (over there) who are buying kiwifruit and wine have a lot of other things on their mind," he said. New Zealand was also feeding off the back of the train involving the Chinese and Australian markets, and China was experiencing a property bubble. "If something goes wrong, then New Zealand will be affected," Mr English said. He said any shift in interest rates in New Zealand will have more of an impact than before because a majority of the mortgages were on a floating rate.
