Mortgage rates: How low could they go?
Currently, interest rates are at 6.92% on average for floating rates, 5.64% for one-year fixed, and 5.63% for two-year fixed.
That's with the OCR currently sitting at 3.25% and set to have its fourth review of the year next week. But is it set to drop again? And if so, would interest rates continue to fall over the next few months?
The outlook isn't necessarily positive for homeowners, with Infometrics economist Brad Olsen telling 1News: 'We continue to think that mortgage rate cuts have largely run their course.'
Olsen said the market is expecting the Reserve Bank (RBNZ) to make limited further cuts to the OCR.
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'Wholesale interest rates and swaps are not showing a huge amount of room to move when it comes to further interest rate cuts,' he explained.
Changes expected, but will be small
Infometrics principal economist Brad Olsen. (Source: 1News)
'Banks will likely tweak their rates to be more competitive or remain competitive with what other banks offer, rather than continued further large cuts to interest rates," Olsen said.
'Further OCR cuts or global interest rate declines would be needed to see any more substantial easing in rates.'
Will the OCR drop again?
(Source: rnz.co.nz)
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Economists and banks are largely expecting a pause in the cuts to the OCR this month.
A recent report at ASB said: 'With a higher short-term NZ inflation trajectory (we have CPI annual inflation hitting 3.2% by Q3 2025) and the OCR in the goldilocks zone, the RBNZ are likely to want to pause to assess forthcoming events and data.'
ANZ made a similar assessment in their recent report.
'On the one hand, recent increases in surveyed inflation expectations, inflation uncertainty in the US owing to tariffs, and higher farmgate returns may mean fewer OCR cuts are needed.'
However, ANZ did leave the door open to more cuts if Trump's "liberation day" tariffs were to cause some economic turbulence – which is something that remains up in the air.
Reflecting the sentiment of both banks, Olsen said expectations in the market are for no cut to the OCR in July 'as the RBNZ takes a pause'.
He did however add the market is expecting 'one further cut', which would be 'pencilled in at some point before the end of 2025'.
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'Other forecasters have expectations of further OCR cuts, possibly taking the OCR down to 2.5%, based on expectations that a sluggish economic recovery and business sentiment will limit price rises," Olsen said.
'At Infometrics, we're currently sticking to our view that there's one more OCR cut at some point in 2025, and then that's the end.'
What about the housing market?
An aerial view of housing (file image) (Source: istock.com)
The housing market is still taking time to regain momentum, according to Olsen.
'There are some figures here and there of prices rising a touch, and an increase in sales. But the number of properties available for sale still remains really high, limiting too much potential for prices to rise quickly in the short term.
'There's just too many sellers and too few buyers at present (relatively speaking), with a lot of new and existing houses on the market for sale.'
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Olsen said the lower interest rates will stimulate more activity over time, but people are being cautious for now.
'We expect slow house price growth over the next few years as stock levels are high, building levels have been high, and population growth has slowed.'
Is this expected to impact the broader economy?
Kiwis appear to still be cautious on spending, Olsen said. (Source: istock.com)
Generally, Olsen expects households to refix their mortgage rates onto lower rates than they were paying before, which will ease some pressure.
Over time, this extra money households have is expected to be spent in other parts of the economy. But for now, Olsen said households still appear cautious.
'With higher unemployment, people are likely to be planning for a 'rainy day' and [saving] any of their additional available cash in case they lose their job or other pressures emerge.'
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What's the trend for re-fixing?
According to the latest RBNZ data, Olsen said there is a shift in how households are approaching interest rates.
In January and February, there was a 'heavy focus' on short-term rates.
'Households were opting for floating or six-month fixed terms much more, with 61% of new mortgage lending at the start of the year going on those terms, and only 36% going on terms of 1-2 years.'
However, in March and April that flipped, with Kiwis increasingly looking at longer terms. During this period, the approach was the opposite to previous months - 61% of new lending was now going on one-to-two-year terms, and 36% on floating or six-month terms.
He added this shift implies households are 'a bit more focused' on stability and reliability of their mortgage repayments.
'Plus, a view that further rates cuts might be off the cards, or more limited – and comes of course at the same time as the increasing uncertainty globally as tariffs were announced.'
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The OCR will be reviewed by the Reserve Bank on Wednesday, July 9.
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