Reserve bank warns of potentially stressful impact of potential interest rate spikes

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1 NEWS

Record low interest rates have been helping many first home buyers claw their way onto the property ladder, but mortgage rates aren't expected to stay low forever.

As the Reserve bank warns of rising mortgage rates could see Auckland home buyers spend 70 per cent of income on housing costs.
Source: 1 NEWS

Mortgage analyst Jose George told 1 NEWS "The interest rate environment is that has been around for the last few years is definitely turning.

"I believe first home-buyers will be vulnerable to managing their budget."

The government is also concerned and have been asking the Reserve Bank just how borrowers will cope when the rates rise.

A Reserve Bank email to the government in January warned that if rates were to rise to 7.5 per cent a typical first home buyer in Auckland could be spending around 70 per cent of their income on housing costs.

While the percentage for first home buyer's outside Auckland would be around 50 per cent.

Greens co-leader Metiria Turei said "It's a real concern, the Reserve Bank is very worried about these first home buyers buying into the market because they are concerned about house prices growing, and the high levels of debt.

"The Reserve Bank is also saying it could mean families have to cut back on essentials like food and power."

Finance Minister Steven Joyce told 1 NEWS, although he expects rates to increase, he doesn't predict it will get to those levels.

The Reserve Bank meets on Thursday to consider its official cash rate.

While a hike isn't likely this week, economists believe a rate rise is definitely on the way.

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