Wait until August - mortgage experts say more home loan cuts are on the way

- The Reserve Bank has cut the OCR to 3.75%, and signals it will drop to 3% by the end of 2025.

- ANZ reduced its two-year home loan rate to 4.99%, sparking competition among banks.

- Some mortgage experts suggest homeowners consider fixing rates soon, as further drops may be smaller and slower.

Homeowners might be in for a nice surprise in the coming weeks as competition for customers heats up and banks start slashing their home loan rates.

The Reserve Bank of New Zealand cut the OCR by 50 basis points to 3.75% on Wednesday and signalled in its Monetary Policy Statement that it could now bottom out somewhere between 3% and 3.25%.

Banks have already started to react with the country’s biggest lender ANZ dropping its two-year home loan rate to 4.99% last night.

Westpac was the first bank to offer a sub-5% interest rate earlier this month before having a change of heart and announcing it would go back up to 5.39% by the end of this week.

ANZ dropped its two-year home loan rate to 4.99% following Wednesday's cut to the OCR. Photo / Doug Sherring

GV Financial Services director and mortgage broker Gareth Veale expected competition to heat up between the banks.

“ANZ dropping rates is going to send a signal across the market and everyone else is going to drop – I presume.”

ASB was already offering a two-year rate at 5.09% so it wouldn’t be a massive leap to move to 4.99%, he said.

Veale said people thinking of floating while the rates were still going down should negotiate a discount as that could take it down to about 5.99%. Some variable rates are still advertised as being in the early 7%s.

“You might be surprised at what you might be able to get.”

Discover more:

- Tony Alexander: What the OCR cut means for the housing market and home loan costs

- Christian couple's life-size Ark for sale - ‘we need a Noah 2.0’

- Townhouses from cancelled Block NZ sell for a huge loss despite fetching top prices

However, he added that rates had already dropped in the last year by 2% to 4.99% so the biggest movement had already happened. “You might see another half a percent, but locking in with that certainty of the low rate now might be the good thing to do because the rate drops are not going to be the same as what we’ve experienced recently.”

Infometrics chief forecaster Gareth Kiernan said while banks had already factored in the latest drop prior to this week’s OCR announcement, they hadn’t accounted for it potentially hitting 3% this year.

Homeowners looking to fix for one to two years might want to hold off for a while, he said, because the shorter fixed-term rates would continue to fall. Infometrics’ own forecasts showed interest rates would hit the bottom in August.

“It’s a bit of a balancing act saying do I fix for six months which is obviously a higher rate than the one or two year you are looking at, but you could get the pay-off for that in six months when you are fixing at the bottom I guess, but it’s always a bit unknown.”

Kiwibank chief economist Jarrod Kerr: "This is good news for everyone in the economy.” Photo / Supplied

However, CoreLogic chief property economist Kelvin Davidson felt the next drops in interest rates could be “a bit slower or smaller than those seen to date – especially since banks were already cutting in advance of today’s decision anyway”.

Once the OCR bottomed out later in the year, he said borrowers might potentially switch from the floating and short-term fixed rates they had been favouring over the last few years to longer-term fixed rates.

Kiwibank chief economist Jarrod Kerr said most of the cuts coming would be to the variable, six-month and possibly one-year rates.

Kerr welcomed RBNZ’s decision on Wednesday saying that they were now all on the same page.

“We are kind of hoping the Reserve Bank would be at 3% in the next six months and that puts us in a good position heading into next year. The main message is that they’ve pulled forward their rate cuts again.”

He expected two consecutive cuts to be announced at the next OCR announcements held in early April and the end of May, which would likely bring it down to 3.25%.

“Reading between the lines and what the Governor said they will be at 3% by the end of the year which is good news for an economy that’s doing it tough for a couple of years now,” he said.

“A 3% cash rate is a lot more helpful than where we are today so that will continue to feed through and help boost the economy and help boost confidence and help boost the housing market.”

Kerr was pleasantly surprised that RBNZ had slashed the rate by half a percent well ahead before their original projections.

“If you go by their announcement in November, it’s a recovery but it’s a slow one, and if you go by what they are saying today it’s a faster recovery because they are cutting quicker. This is good news for everyone in the economy.”

However, Kiernan was slightly more cautious. While he was pleased to see the latest cut to the OCR, he thought the RBNZ was jumping the gun. He said it should wait to see the impact of the latest cuts to interest rates first otherwise it might put it too low this year and then be forced to put it back up in 2026.

- Click here to find properties for sale