Are we finally at the bottom of the rate cycle?

Mortgage rates could drop below 4% within the next six months, the NZ Herald reported this week, as New Zealand reaches the bottom of the interest rate cycle.

Squirrel founder John Bolton (pictured) said the market has largely hit its lowest point, with limited further movement expected beyond one more potential OCR cut before year-end.

"We're largely at the bottom of the cycle now, so I wouldn't expect to see too much movement in the rates," Bolton said. "There's an opportunity that the one-year rate could go a little bit lower, particularly if we get another OCR decrease before the end of the year."

The RBNZ has one more OCR announcement scheduled for late November before February, with Bolton placing odds at 50-50 for another quarter-percent reduction. He expects that would mark the end of cuts as economic recovery takes hold.

Kiwibank's economics team also thinks that further cuts are likely, predicting another 25 basis point reduction in November to take the OCR to 2.25%. They also see a 50/50 chance of a move to 2% in February, depending on how the recovery unfolds over summer.

"I think the next OCR change will be the last decrease if we get one, because I think green shoots are starting to emerge," Bolton said. "We'll come back in the new year, Kiwis will have benefited from these lower rates, our agricultural sector is quite strong at the moment, so I think we'll be very much in recovery mode next year."

However, he noted that 2026 being an election year adds uncertainty to the outlook.

Strategic approach for borrowers

For homeowners deciding on mortgage terms, Bolton said the current environment favours a split strategy -taking advantage of attractive one-year rates while hedging against future increases with longer-term fixes.

"When we're at the bottom of the cycle, a one-year rate looks really attractive," he said. "But maybe also put part of your loan on a longer-term rate, particularly if you're rate-sensitive."

He pointed out that the OCR is now below the Reserve Bank's neutral rate of around 5%, meaning monetary policy is actively stimulating the economy. As recovery accelerates, rates will need to rise back toward neutral.

"We are below what the Reserve Bank calls the neutral OCR now, which means that it's stimulatory," Bolton said. "When the economy does start to recover, we should start to see one or two rate increases coming through to come back to neutral. Neutral rates are sitting at around the 5% mark.

"In that context, those longer-term rates like the 3-year rate at around 4.90% look really attractive."

Kiwibank noted that the RBNZ's use of "reductions" in plural – stating they "remain open to further reductions in the OCR” – signals genuine optionality for additional cuts beyond November, rather than just one more move.

The comments follow the RBNZ's larger-than-expected 50-basis-point cut, which triggered a wave of repricing across major banks and non-bank lenders. Westpac now offers the lowest two-year special fixed rate among major banks at 4.49%, while one-year rates have also dropped to 4.49% at several lenders.

For mortgage advisers, the outlook suggests the current window for locking in low rates may be narrowing as the cycle bottoms out and recovery begins.