Home owners with big mortgages will be under pressure next year as interest rates rise, economists say.
Many banks have raised fixed mortgage rates and withdrawn special deals ahead of Christmas as economists predict floating mortgage rates may rise to as much as 7.5 per cent over two years from 5.75 per cent currently.
Commentators have warned that first home buyers have taken on too much debt because interest rates have been low for many years.
ASB chief economist Nick Tuffley said borrowers should build in a buffer because interest rates will return to more "normal" levels but savers who rely on interest income will be better off when interest rates rise.
"Inevitably we're going to see rates get back to what will be a more normal level. We've been in an unusually low period and it's favoured borrowers," he said on Radio New Zealand's Morning Report.
The Reserve Bank of New Zealand (RBNZ) has held the official cash rate (OCR) at a record-low 2.5 per cent since March 2011.
The rate was cut to that level as far back as 2009 in the wake of the global financial crisis and the bank had started increasing it in 2010. It was cut again after the February 2011 earthquake in Canterbury.
Westpac said last week that the RBNZ will hike the OCR by 25 basis points five times next year in March, April, June, September and December.
"The New Zealand economy is clearly stronger than the RBNZ anticipated, and export commodity prices remain extremely high," Westpac NZ chief economist Dominick Stephens said.
Last week a Sydney-based money manager at BlackRock Inc told Bloomberg that the OCR may rise when it is reviewed in January.
"First cab off the rank in terms of surprises next year might be the RBNZ hiking by 50 basis points in January," Stephen Miller said.
NZN