Economists say that interest rate rises could see first-home buyers spending two-thirds or more of their household income paying the mortgage. Household debt levels are high by historical standards and servicing costs relative to income will rise quickly as interest rates climb.

ASB Economists are forecasting a peak for the official cash rate to be around 4.5 per cent – the level considered 'neutral' ie neither stimulating or restraining the economy.

If the OCR were to rise to 4.5 per cent by the end of next year, repayments on a newly-bought home in Auckland would rise from 52 per cent of disposable income to 67 per cent. 

Experts are expecting the Reserve Bank to raise the OCR this week.

And the ASB economists warn the OCR peak could turn out to be higher than they are currently picking. It could be higher than 4.5 per cent if borrowing appetites rebound back towards the levels prevailing before the Global Financial Crisis.

Source: NZ Herald