Budget for floating rates to rise 3%

The OCR will stay at 2.50% this week and is likely to reach 6% sometime early in 2012 predicts BNZ economist Tony Alexander.

Monday, January 25th 2010, 1:44PM

by Jenha White

In the first weekly overview of 2012 he says the markets are of the opinion that a tightening could come as early as March but ASB's expectation remains that the first tightening will come mid-year.

He says this means that floating rate borrowers should long have been budgeting for their floating rate costs to rise about 3% or so from mid-2010 to the end of 2011.

Alexander says if he were a borrower he would float and use the cash flow benefit to get the principal down on his mortgage as much as possible before the floating rate kicks up.

"I am near 100% certain nothing will push me to fix three years or beyond over the next two to three years and fixing two years is also very unlikely given the rate jump from floating that would involve."

But, he says he would keep a close eye on where the markets are going with a strong probability of fixing one year or even 18 months sometime in the first half of the year if we are close to the floating rate starting to rise and if fixed rates could be locked in at current levels.

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