Cheapest mortgages could hit 8.5pc

For the first time, the Reserve Bank has forecast average mortgage rates for the next couple of years. It was seen as another shot across the bows of the housing market that interest rates are still heading up, even though hot competition among banks has caused fixed-term rates to fall in recent weeks.

Reserve Bank governor Alan Bollard said yesterday that more official interest rate rises could not be ruled out next year, dashing expectations that rates may dip by the middle of next year.

"There is still a 30 to 40 per cent probability floating mortgage rates are going up before the middle of next year," Bank of New Zealand chief economist Tony Alexander said.

An official interest rate rise could come as soon as late January or the middle of March, which would push floating mortgage rates to 9 per cent, he said.

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