Lower rates are good news for borrowers – but here's what advisers need to watch for next
New Zealand’s mortgage market remains steady for now, but global economic tremors are adding uncertainty to the interest rate outlook. As international trade disruptions intensify and global growth slows, the Reserve Bank of New Zealand (RBNZ) is likely to maintain a cautious approach, leaving brokers and borrowers in something of a holding pattern.
Slow progress on trade deals threatens growth
Just two weeks ago, Kiwibank economists warned that escalating trade tensions could rattle financial markets and put advisers on high alert. At that time, hopes remained that negotiations would progress quickly, limiting any major economic fallout.
Fast forward to today, and those warnings are starting to ring louder, with trade deals still stuck in limbo and uncertainty weighing heavily on growth prospects.
Kiwibank economist Sabrina Delgado highlighted the delicate balance the economy is treading.
“Two weeks ago, we were talking about our upside and our central scenario,” she said in Kiwibank’s “Markets, Mystics and Mayhem” podcast.
“The difference between those scenarios, when it came down to it, was all about timing and how quickly these deals are made. We’re still on the cusp of whether we’re leaning towards the upside or the central, but the longer we wait and the more the markets stay in this uncertain environment, the more damage there is to growth.”
For mortgage advisers, this uncertainty matters. Prolonged trade disruptions could weaken business confidence, reduce household spending, and ultimately slow housing market activity. Adding to the pressure, the International Monetary Fund has downgraded growth forecasts for most major economies in its preview of the upcoming World Economic Outlook, hinting at a tougher global environment ahead.
Kiwibank chief economist Jarrod Kerr warned that New Zealand’s exposure to the fortunes of its key trading partners leaves it vulnerable.
“Two large Australian partners being downgraded is not great for us,” Kerr said.
“The Aussies will also get hit directly by the slowdown in China and the United States, so it’s a direct and indirect double whammy.”
“Our upside scenario was that the trade negotiations will take weeks to come through,” he said. “The central scenario was that they take months, and the downside scenario is that it turns into something more aggressive. I still feel like we’re going through that central scenario.”
Interest rates steady, but for how long?
Despite growing international headwinds, New Zealand’s interest rate markets have remained relatively stable - at least for now. For mortgage advisers, this means a degree of predictability in the short term, though the longer-term direction still hinges on how global events unfold.
Kerr noted that swap rates – used to price fixed-rate mortgages – have barely moved recently.
“I think rates markets (in New Zealand) are fine,” Kerr said. “The two-year swap rate is pretty much where it was two weeks ago, so that pivotal interest rate in New Zealand hasn’t really moved.”
He added that the OCR forecast is also relatively stable across New Zealand’s major banks. While expectations are still tilted toward further rate cuts, the adjustments are expected to be modest and gradual rather than sharp or sudden.
“If you look at the market pricing for rate cuts here, it’s going down to around 2.70% – we’re at 2.50%,” he said. “We still expect rates to fall further, but we’re not massively dislocated. I think the market is fairly priced for what’s happened.”
The ASB’s latest Economic Weekly confirms this view, pointing out that falling swap rates reflect the market’s revised inflation and growth expectations. However, the bank also noted that any gains in mortgage affordability may be limited by broader concerns about household budgets and rising non-interest costs.
For now, the key message is stability with a watchful eye on what lies ahead.
