Mortgage interest and other costs of ownership are absorbing a larger share of the benefits of owning a home than has been the case in the past, ANZ economists say.They have released their latest Property Focus report, which notes that house prices are broadly flat, albeit drifting lower in Auckland and Wellington.They said they expect house prices to end the year 1 percent below where they started and to rise 2 percent next year."House prices are facing headwinds from rising interest rates, election uncertainty, and the potential for new housing taxes should there be a change in government."Balancing against this, a gradually improving economy is providing some support. Rising interest rates are likely to be the most important headwind. Shorter-term wholesale interest rates such as the one-year swap rate have been edging upwards all year as OCR hikes have approached."ANZ expects the OCR to be lifted to 3 percent over the next two reviews.It said longer-term interest rates were also facing pressure from overseas as global interest rates drifted up."At current levels, interest rates are providing little support for house prices. Compared with mortgage rates, net rental yields remain relatively low by historical standards. That suggests that the cost of financing and owning a home is still high relative to the rental income it generates (for investors) or housing services it provides (for owner- occupiers). In other words, for many buyers, mortgage interest and other ownership costs are absorbing a larger share of the benefits of owning a home than has been the historic norm."ANZ's economists said all fixed mortgage rates except the four- and five-year rates had risen over the month.The appeal of shorter-term fixes had reduced, they said."However, for borrowers with new mortgages or rollovers coming due this month, there is still a decision to make, and now that shorter-term rates are a little higher, the maths just got a bit more important."They said there was not a lot separating two-year rates and longer terms."That doesn't mean they are all good choices, as from a cost perspective one ought to compare them to cheaper alternatives, including the one-year."But people who put the most value on certainty would be able to access it without paying much of a premium over the two-year rates.People who were worried about the cost of their borrowing would need to ask themselves whether they thought a 5.5 percent rate - which is what most banks are roughly charging for two-year fixes - was reasonable given what it implied about where the official cash rate would go.."Given that fixed mortgage rates in the two- to five-year part of the curve tend to sit around 2 percentage points above long-term market expectations for the OCR, longer-term fixes will only really pay off if the OCR averages 3.5 percent or higher over the relevant period. We are still pencilling in a 3 percent peak in the OCR, with the risks skewed a bit higher, but we see 3.5 percent as a relatively high bar to clear. But there is always wide uncertainty about where interest rates are heading, and the oil market remains volatile."They said borrowers would also need to compare the longer-term options with shorter, cheaper rates.The six-month rate was only about two basis points below the one-year, on average, they said. A four basis point increase in the six-month rate would make it more expensive to roll two six-month fixes than to fix for one year."And that could easily happen, given that we expect 50bp of OCR hikes before year-end."The one-year rate would need to rise by almost one percentage point to make it a better option than two one-year fixes."That could happen, but it's a bigger jump than we are projecting. It reflects that financial markets expect more OCR hikes than we do. If we are right, a series of back-to-back one-year fixes may therefore end up being the cheaper alternative if you're prepared to forgo the certainty of a longer fix. but in this uncertain environment (the oil price is just the start), that is arguably quite a valuable thing to forgo."[https://rnz.us6.list-manage.com/subscribe?u=211a938dcf3e634ba2427dde9&id=b4c9a30ed6 Sign up for Money with Susan Edmunds], a weekly newsletter covering all the things that affect how we make and spend money