Short fixes near floor as longer terms firm
ASB says home loan borrowers may already be past the low point for this interest rate cycle, with longer-term fixed rates starting to edge higher even as the official cash rate (OCR) sits at 2.25%.
“The RBNZ’s official cash rate (OCR) was lowered to 2.25% at the last meeting of 2025 in November and is now well off the 5.5% peak,” ASB senior economist Chris Tennent-Brown said in the bank’s latest Home Loan Rate Report.
“Our view is the RBNZ will likely be on hold over 2026, but the risks are now tilted towards the next move in the OCR being higher, rather than lower.”
Tennent-Brown noted that “overall, the OCR and mortgage rates are lower than the ASB Economics team expected in reports from early 2025, due to the RBNZ cutting the OCR by more than what we initially expected.”
Recent data have generally supported this cautious stance, with New Zealand business confidence rebounding, GDP surprising on the upside, and export prices holding up in key sectors, even as selected price indices and ASB’s own CPI estimates suggest annual inflation may be hovering around or just above 3%, rather than easing quickly back towards the RBNZ’s 2% midpoint.
Short-term rates near lows, longer terms under pressure
ASB says popular one–to–two‑year fixed terms have seen multiple adjustments over the past two years.
“One-year fixed rates are around 3% below the peaks seen in 2022/23, but rates for two years and longer lifted off the 2025 lows in the last half of December,” Tennent-Brown said.
Financial markets are now pricing the risk that the next OCR move could be a hike, pushing wholesale interest rates higher and feeding into term mortgage pricing.
“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,” Tennent-Brown said.
ASB’s bias is for shorter-term mortgage rates (floating or up to around one year) to sit near current levels over 2026 and eventually rise as the economy improves, while “the fixed terms beyond two years could increase further over 2026 if the NZ economy, and global backdrop evolves as we expect.”
‘Not all about nabbing the lowest fixed rate’
Tennent-Brown emphasised that borrowers should focus on overall strategy rather than simply chasing the lowest advertised rate.
“Firstly, it’s not a one-way street for mortgage rates over the next year or two, with several opposing forces in the local and global economic environment," he said. "Secondly, it’s not all about the RBNZ’s OCR announcements… And thirdly, it’s not all about nabbing the lowest fixed rate.
“Borrowers need to balance their needs for flexibility, repayment timeframes, the cost of floating vs. fixing, and other personal needs whilst trying to minimise the cost of borrowing over the entire period of a home loan.”
Floating and six‑month fixed rates remain “a relatively expensive place to be borrowing”, while some fixed terms “are now around or past the lows we expected for this cycle, based on ASB’s economic forecasts.
“These are trade-offs for borrowers to consider at present. It’s not all about picking the bottom of the mortgage interest rate cycle, especially because that point could be behind us now.”
ASB: build a plan, don’t bank on COVID-era lows
ASB highlights the OCR, offshore interest rates, and bank funding costs as key drivers of mortgage pricing and says interest rate markets can change quickly.
“Volatility in interest rates can flow through to mortgage interest rates. Being aware of these risks is an important part of choosing a mortgage strategy,” Tennent-Brown said.
The bank expects mortgage rates to settle “in a much higher range than the historic lows struck during COVID‑19” and urges borrowers to focus on what fits their budgets and risk appetite.
“We suggest borrowers pick a strategy that suits personal budgets (including a tolerance for changing interest rates), the need for flexibility, as well as the goal of minimising interest rate costs," Tennent-Brown said. "It is important to weigh up your own priorities and make the mortgage choice that looks best aligned with your needs.”
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