Source: Radio New Zealand
Reserve Bank data shows the average two-year special rate has dropped from about 7 percent at the peak to just over 4.5 percent at the end of last year. RNZ
The big interest rate question this year will likely be when interest rates start to rise materially again – but borrowers might want to fix their home loans soon, forecasters warn.
Rates have generally been falling since 2024. Reserve Bank data shows the average two-year special rate has dropped from about 7 percent at the peak to just over 4.5 percent at the end of last year.
The main banks are now advertising two-year specials of 4.69 percent or 4.75 percent.
When the Reserve Bank indicated in its latest official cash rate update that it did not necessarily expect to cut rates further, it prompted wholesale markets to lift and some fixed rates to shift higher.
Reserve Bank governor Anna Breman indicated that the market may have moved too far.
BNZ chief economist Mike Jones said interest rates would likely be on hold for now.
“There seems to be a growing risk that interest-rate hikes, although they are a way off, might come a little bit earlier than our expectations,” he said.
“Formally, that’s still the first lift in the OCR coming in February of 2027, but from what we’ve seen from the data recently, there’s a risk it could be late 2026. That’s something the markets are now already pricing.”
He said wholesale markets had now priced in a full 25-basis-point hike by the end of the year, so retail rates may not move a lot, even if that proved true.
“I think we’re in a position we can probably draw a line under the downtrend in mortgage rates, but we can’t see mortgage rates jumping a whole lot any time soon either.
“It does seem to us like we’re in for a period of consolidation, I think, in mortgage rates… but it’s also watching and waiting nervously for what we see offshore in particular, because it is quite a heightened environment for geopolitical risk and risks generally.”
ASB economists said the OCR and mortgage rates were now lower than they had expected in forecasts made early last year. They expected short-term rates to stay at their current levels this year, before rising as the economy improved.
Longer-term fixed rates of more than two years could increase more over 2026.
“Major global central banks have also been cutting policy rates over 2025, at different paces,” they said. “That has impacted global interest rate markets, including markets where New Zealand banks compete for funding.
“Longer-term NZ mortgage rates eased over 2024 to reflect the combination of the global and local outlook. Our view now is that longer-term rates are under upward pressure, reflecting longer-term inflation expectations and global central bank actions.
“In addition, it is very significant that wholesale interest rates rose in immediate response to the RBNZ’s November OCR cut, after the RBNZ in effect downplayed the prospects of any further OCR cuts.
“In early 2026, the wholesale interest rates that influence term mortgage rates for one-year terms and onwards are past their lows for the easing cycle, and that’s put upward pressure on both longer-term mortgage rates and term deposit rates.”
Infometrics chief forecaster Gareth Kiernan said he expected the OCR to stay at 2.25 percent until November, but inflation was still likely to come in higher than the bank anticipated this week.
“There are questions about how quickly that headline inflation rate might moderate and, if that’s the case, well, maybe the Reserve Bank does need to raise a little bit sooner rather than later, but at this stage, we’re still sticking to the end of the year.”
He said it would make sense for most people to think about fixing their home loan rates for longer.
“There doesn’t seem to be a lot of evidence that those retail rates will be coming down any further now. Previously, I think I talked about you’ve probably got until the middle of this year before you start to see upward pressure, but obviously, the market has turned a little bit quicker.
“It’s just a question now, for me, whether, if you’re going to go at three or four or five years, whether you’ve maybe missed the boat a little bit on some of those.”
Reserve Bank data shows three-year special rates hit a trough of about 4.8 percent in November, before increasing. The main banks are all now advertising rates more than 5 percent.
At Squirrel, David Cunningham expected little movement. He said banks were competing hard with things like cash back, rather than trying to tempt borrowers with new lower rates.
Jones said BNZ had also reduced its expectations for house-price rises this year.
“They were already pretty modest at 4 percent for the calendar year, but we’ve tapered them back a little to 2 percent. From what we’re seeing, particularly on the supply side, we think some of those risks we’ve been talking about for a while, about kind of sideways for longer, seem to be crystalising.
“It’s a market that looks pretty well balanced at the moment. It has been for most of the last 12 months, where you’ve got a bit of extra demand, you’ve got a faster pace of sales, but that’s been matched off pretty well by the supply side and new listings.
“We basically just think that market – all that sort of balanced type of conditions – will remain in play for longer.”
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