Predictions that mortgage rates will start to rise significantly next year should serve as a wake-up call for property investors, the NZ Property Investors Federation says.
President Andrew King said it was likely that many people were taking a relaxed attitude to rent increases because rates had been so low. “They may find that they cannot increase their rents as much as they need to when the interest rate rises do hit.”
He said slow and regular increases were better for owners and tenants than big increased.
The Reserve Bank predicts floating mortgage rates will rise to 7 or 8 per cent over the next two or three years and says buyers who entered the market in recent years with small deposits will be disproportionately affected.
In its recent Financial Stability Report, the Reserve Bank said recent low mortgage rates might have encouraged people to bid more for properties than they otherwise would. Low interest rates have made higher prices easier to bear. Without them, households may struggle.
Massey University banking expert David Tripe said borrowers would be in for a fright. "There is some question in my mind as to some of the marketing done by some of the banks. I have a strong suspicion that some people haven't really taken account of the risk, simply because they have been so enthusiastic about selling loans here and there."