The Reserve Bank will review the official cash rate this week and most economists expect a 25 basis-point increase - but what lies ahead for home loan rates?
Borrowers can currently lock in a one-year rate at 4.99 percent, while two-year rates vary between 5.29-5.45 percent at the big banks.
The cheaper one-year term has been popular with borrowers, but in its recent breakeven analysis, ANZ said shorter-term rates would not have to rise by a lot to make it cheaper to take a longer fix over time.
"Our sense is that there is nowhere to hide. Fixing for six months is cheapest, but will likely expose you to fixing at a higher rate, when you roll over in six months, so it's all about managing risks and, with our breakevens showing that rates like the one- and two-year don't have to rise by much to make fixing for 2-3 years cheaper in the long run, those tenors may appeal to borrowers, especially as the step-up from one-year or 18-months isn't that significant."
Infometrics chief forecaster Gareth Kiernan said wholesale markets were now pricing in an OCR of 3.14 percent by the end of the year - or another one-and-a-half increases - and 4 percent by the end of next year.
He said rates longer than two years still looked expensive, ranging from 5.45-5.59 percent for three years and 5.45-5.79 percent for four, but he said a two-year rate of 5.35 percent could be better value than rolling two one-year rates.
"That's before you take into account the additional certainty that they offer from a borrower's perspective."
ASB senior economist Chris Tennent Brown expected home loan rates to rise through the rest of this year and into 2027.
"There is a bit more upward pressure on the outlook for interest rates, including mortgage rates, than there was a few months ago," he said. "We are concerned that inflation over 2027 could prove slow to recede.
"We have changed our OCR peak and now expect 75bps of hikes to a 3.5 percent OCR peak."
BNZ chief economist Mike Jones said the decision was balanced.
"It still comes down to whether households judge the additional certainty of fixing for longer terms to be worth the extra upfront costs."
He said there were reasons to think some of the shorter terms might increase.
"The fact the market is already pricing in the OCR rising to a peak near 4 percent is important context, because it will limit how far some of those particularly longer-term fixed mortgage rates rise as a higher OCR is actually delivered on. Our view is that additional increases in mortgage rates over the coming 6-9 months are more likely to be concentrated in the shorter-terms."
Squirrel chief executive David Cunnigham said the market had already priced in enough increases to the OCR that the decision this week would not make much difference.
It would push up floating home loan rates, but only about 10 percent of mortgages were floating.
He said he had previously wondered whether the Reserve Bank would be willing to increase the rate in an election campaign.
"I always thought that, in the back of their minds, they'd be considering that, but they're just returning to neutral interest rates as the storyline, so it's no big deal.
"You know, they're just lifting them to a level around 3-4 percent, maybe 3.5 is where they finish up, but that's already priced into fixed rates."
