RBNZ rate cuts flow through to fixed terms
New Zealand borrowers are benefitting from sustained downward pressure on mortgage rates, with ASB forecasting one final official cash rate (OCR) cut this year before stabilisation in 2026.
ASB Senior Economist Chris Tennent-Brown (pictured) said the Reserve Bank’s rapid easing cycle had taken the OCR from 5.5% in August 2024 to 2.5%, with another 25 basis point reduction expected in November to a low of 2.25%.
“Our view is the RBNZ will ease the OCR once more at its final 2025 review in November,” Tennent-Brown said. “That’s lower than we expected in reports from earlier in the year.”
He cautioned borrowers not to assume rates will keep falling indefinitely.
“It’s not a one-way street to lower mortgage rates, particularly over the next year or two, when there are several opposing forces in the local and global economic environment,” Tennent-Brown said.
Shorter-term mortgage rates likely to edge lower
Fixed-term mortgages between one and two years have seen the most significant reductions, now up to 3% below their 2022–23 peaks. ASB expects the bias for short-term rates to remain slightly lower through 2025, while floating and six-month terms remain comparatively expensive.
“The view that there’s a bit more easing to come is also reflected in the financial markets where mortgages are funded,” Tennent-Brown said.
However, longer-term fixed rates are less likely to decline further given upward pressure on long-run inflation expectations.
“Significant falls for the longest fixed rates are less likely, especially with some of the recent developments putting upward pressure on longer-term inflation expectations,” Tennent-Brown said.
Borrowers urged to balance flexibility and certainty
ASB emphasises that rate timing alone shouldn’t determine loan structure. Borrowers should balance flexibility, repayment goals, and total borrowing costs rather than chase the single lowest rate point.
“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 loan,” Tennent-Brown said.
He added that many customers face a “bird in the hand or two in the bush” decision: short terms offer immediate savings, while longer fixes deliver greater certainty.
This easing cycle is already filtering through to renewed property activity. Data from Cotality shows mortgaged multiple property owners are steadily returning after two years of muted demand, helped by lower rates, reduced LVRs, and the reinstatement of mortgage interest deductibility. Investor share of national purchases has risen to around 24%, with confidence building across major centres such as Auckland, Hamilton, and Christchurch.
Outlook: Rates to stabilise above pre-COVID lows
ASB expects mortgage rates to settle near current levels into 2026, remaining well above the record lows of the COVID-19 era.
“Mortgage interest rates will settle near current levels, in a much higher range than the historic lows struck during COVID-19,” Tennent-Brown said.
“Choosing the right strategy is never straightforward. It’s important to weigh up your own priorities and make the mortgage choice that looks best aligned with your needs.”
Key takeaways for brokers
- OCR expected to fall once more to 2.25% in November.
- One–two year fixed terms remain most competitive; floating stays pricey.
- Longer fixes likely to stabilise or edge higher if inflation lingers.
- Investor demand strengthening as lending and tax settings ease.
- Structure for flexibility + certainty, not just the lowest advertised rate.
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