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Mortgage rate rises are already hurting homeowner Georgina Newman, and will dent the spirits of many more people over the next year as fixed-term loan rates come up for renewal.
Reserve Bank Governor Alan Bollard's decision yesterday to raise the official cash rate by 25 basis points to 8 per cent is expected to start a new round of mortgage interest rate rises.
It is the third time Dr Bollard has lifted interest rates this year, and the rises have begun to bite.
Ms Newman, a 31-year-old who bought her first house on Waiheke Island just under four years ago, has a story that is likely to become reality for many more homeowners.
The communications director paid $265,000 for her house, which she jokes is probably about the cheapest on the Hauraki Gulf island.
She had what her bank said was a "really good" mortgage interest rate of 6.2 per cent over a three-year term.
When she split from her partner, she took on the fortnightly payments of between $750 and $800 herself.
When her fixed-term mortgage matured about nine months ago, Ms Newman's interest rate went up to 8.2 per cent, and her payments rose to nearer $950 a fortnight.
About the same time, she was also hit by a sharp rise in council rates.
"They went sky high, so I was definitely feeling the pinch of the mortgage increases," she said.
She has fixed her mortgage at the new rate for two years in the hope that by the end of that period the interest rate rises may have ended.
"The other day I looked at what I was paying each week in interest to the bank, and what I was paying off my principal. I just about had a heart attack," she said.
But Ms Newman is an optimist and is hanging in, making her payments. If interest rates do not stop rising by the time her current mortgage rolls over, she will consider selling her home.
"I'm four years into my mortgage and already I'm sick of it," she joked.
Ms Newman's experience is likely to be repeated all over New Zealand in the coming year as 30 per cent of all fixed-mortgage debt is repriced.
The Reserve Bank's monetary policy statement says this debt has an average interest rate of 7.8 per cent and borrowers will face rates of between 70 and 100 basis points higher than they are now paying.
Banks the Herald approached yesterday said they were reviewing their lending rates but had not yet increased them in response to the Reserve Bank's announcement.
The last time the Reserve Bank cut the official cash rate was in July 2003.
The period over which the rate rises have taken place has been extended because many people now have fixed-rate mortgages. For them, there is delay before the rate rises hit.
Borrowers have been continuing to opt for fixed rates, most for longer than two years.
But yesterday Dr Bollard indicated that the rate rises were starting to have an effect on homeowners.
He also faced questioning from MPs during an appearance before the finance and expenditure select committee that focused on the Government's role in fuelling the rate rises.
Dr Bollard has mentioned Government spending as one of the reasons for lifting rates, and it featured again yesterday in the monetary policy statement.
National Party finance spokesman Bill English zeroed in on the statement and claimed Labour's fingerprints were "all over" the interest rate increase.
But Finance Minister Michael Cullen later responded by pointing out that Dr Bollard had rising dairy prices foremost in his mind when he decided on the increase.
Dr Cullen said National's attacks on Government spending were misleading, and he urged the party to explain what it would cut.
