ASB sees scope for further easing in 2025
ASB senior economist Chris Tennent-Brown (pictured) says borrowers are facing a shifting mortgage environment as the Reserve Bank (RBNZ) continues to ease policy.
“The RBNZ’s official cash rate (OCR) has been lowered from a 5.5% rate in August 2024 to 3% at the time of writing. Our view is the RBNZ will ease the OCR a bit more over the remainder of 2025, to a low of 2.5%,” Tennent-Brown said.
He cautioned, however, that rate markets remain volatile.
“It’s not a one-way street to lower mortgage rates, particularly now, when there are several opposing forces in the local and global economic environment,” he said.
The easing cycle is also reshaping the housing market. Cotality data shows first-home buyers now account for 27% of activity – their strongest position in two decades – while movers remain at Global Financial Crisis-era lows. Economists say falling mortgage rates in the “Year of the Refix” are giving first-home buyers and investors more confidence to re-enter the market.
Fixed rates drive borrower decisions
ASB notes that one- and two-year fixed mortgage rates are now up to 2.6% below their 2022/23 peaks. These terms remain the most popular among borrowers.
“Floating, or fixing for the shortest six-month term is a relatively expensive place to be borrowing, while some of the fixed terms are now at or near the lows we expect, based on ASB’s economic forecasts,” Tennent-Brown said.
Borrowers, he added, should not focus solely on timing the bottom of the cycle.
“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,” he said.
Short- vs longer-term rates
Tennent-Brown said shorter-term rates are likely to ease a little further over 2025 as OCR cuts flow through.
“The actual RBNZ OCR cuts over the past year helped lower floating and some fixed rates further. We expect the RBNZ may need to reduce the OCR slightly more over 2025,” he said.
For longer-term rates, however, the outlook is less clear.
“Significant falls for the longest fixed rates are unlikely, especially with some of the recent developments (such as tariffs) pushing inflation expectations higher,” Tennent-Brown said.
Strategy considerations for borrowers
Tennent-Brown stressed that picking the right strategy is highly individual.
“Ultimately, it is a trade-off between the cost of the mortgage rate, interest rate certainty for a longer period, vs. the flexibility of the shorter terms and the potential for rates to ease over the years ahead,” he said.
“While rates may dip lower than expected, he warned they could also “hold up for longer or increase quicker than we currently expect if inflation does not remain contained in the way we are forecasting.”
Other influences to consider
ASB highlighted other factors shaping mortgage costs, including:
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Loan-to-value ratio (LVR) rules and risk pricing
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Debt-to-income (DTI) restrictions activated by the RBNZ
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Break costs when restructuring a loan mid-term
“Economic conditions suggest to the ASB Economics team that mortgage interest rates will settle in a higher range than the historic lows struck during COVID-19,” Tennent-Brown said.
Read the full ASB Home Loan Rate Report.
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