Mortgage brokers believe New Zealand’s one-year rate could drop below 6% before the end of the year as competition among the major banks intensifies.
Home loan rates have been tumbling since the end of July, following the Reserve Bank’s decision to reduce the Official Cash Rate for the first time in more than four years, giving banks confidence to cut faster and harder.
Some major banks have dropped their one-year interest rate to 6.29% and experts believe it won’t be long before it slides down to 5% before landing in the mid-fours early next year.
Mortgage brokers interviewed by OneRoof said the market had reached a turning point, noting a huge uptick in customer enquiries since the OCR dropped 25 basis points to 5.25% on August 14.
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Loan Market mortgage adviser Dave Williams said: “My phone has not stopped ringing since that OCR cut. People are telling me they are really serious about putting pen to paper.”
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He said that with mortgage rates dropping and house prices on the floor, now looked like a good time to enter the market. “I think all those signs are just confidence-building factors for purchasers.”
Williams said the final landing spot for the OCR could be reached as early as April next year. “There are clear signs that we are through the worst of it and the rate reduction cycle looks to be quite aggressive. It has gone down a percentage point in three weeks.”
ANZ seemed to be leading the charge and all the other banks followed it within a few days, he said. Its special one-year home loan rate was at 6.85% three weeks ago and in some cases could now be as low as 6.29%.
The Opes OneRoof Cut Counter showed at time of writing that ASB and BNZ had made the most cuts (15) in the last two weeks. The 18-month rate had been slashed the most since it peaked in 2024, but most banks had also dropped the one-year rate by almost one percentage point too.
The Reserve Bank is expected to cut the OCR to 5% in October and to 4.75% in November. “The markets are predicting he [RBNZ governor Adrian Orr] is going to be quite aggressive with his reduction cycle,” Williams said.
“We could be in the mid to high-fives before Christmas for the one-year rate.”
Kiwibank chief economist Jarrod Kerr agreed that the market had suddenly switched gear.
While he and other economists had been telling people for a while that relief was coming, it was like people needed to see the first OCR cut to believe it.
“We were agonising over when the Reserve Bank was going to start and now they’ve started it’s great – we can just talk about how much.”
Kiwibank chief economist Jarrod Kerr: "I think the Reserve Bank is going to be a bit touchy-feely on the way down." Photo / Supplied
With two more OCR cuts on the cards this year, he said there was no question that interest rates wouldn’t be below 6% by Christmas.
He would like to see the OCR reach the neutral rate of around 2.75% next year, but realistically did not think that would happen until 2026. “I think the Reserve Bank is going to be a bit touchy-feely on the way down to make sure inflation doesn’t bounce back up again.”
Kerr said because a lot of people were only fixed on a short-term rate they would be rolling onto the lower rates faster than normal. “It’s paying dividends for those who have done it,” he said.
Kiwi Mortgages adviser Jatinder Singh said some of his clients were already getting relief from the sudden interest rate drops, which was benefitting both first-home buyers and homeowners.
A couple who had fixed their $800,000 loan for six months on 7.2% had just re-fixed it for 5.89% and were saving $250 a week.
A first-home buyer he was working with had the amount they could borrow go from $670,000 to $700,000 overnight because banks had also adjusted their assessment rates. “That means they can now go out and if it is an auction they can bid $30,000 [more] on the same property,” he said.
Singh said most of his customers were only fixing their loans for six months or splitting it up and fixing half for six months and the remainder for either a year or 18 months.
“A lot of customers are saying they want to fix for a shorter term in case there is a big drop. But also at the same time, 5.89% is a good interest rate for 18 months.”
