Falling mortgage rates boost borrower confidence after OCR cut
BNZ has become the latest major lender to trim home loan rates, reducing six of its standard fixed terms by up to 0.4%, following the Reserve Bank’s 50-basis-point OCR cut to 2.5% earlier this month.
BNZ trims rates across key terms
The biggest reductions were for five-year loans, dropping 0.4% to 4.99%, and two-year rates, down 0.16% to 4.49%, 1News and RNZ reported.
Other decreases included:
- Six-month rate: 4.79% (down 0.1%)
- 18-month rate: 4.45% (down 0.04%)
- Three-year rate: 4.79% (down 0.06%)
- Four-year rate: 4.99% (down 0.1%)
The new rates took effect yesterday, though borrowers with under 20% equity will still pay a low-equity premium.
BNZ’s update follows similar moves by ASB and ANZ, both of which have recently cut fixed and floating rates in response to the RBNZ’s easing. For savers, BNZ also lowered most term deposit rates, excluding its one- and five-year terms.
18-month rate sparks competition
The standout rate – BNZ’s 18-month fixed at 4.45% – matches ASB’s market-leading offer, making it slightly cheaper than one-year terms at both banks.
Infometrics chief forecaster Gareth Kiernan (pictured) said the 18-month option could suit borrowers seeking short-term stability without long-term lock-in, RNZ reported.
“You might be able to refix in April 2027, in 18 months’ time for about 5.1 percent for two years, which is not a terrible rate,” Kiernan said.
However, he said borrowers might gain more flexibility with a shorter fix.
“My modelling suggests the best option at the moment is to take the slightly higher one-year rate and then fix for two years late next year before rates start to rise again,” Kiernan said. “Over three years, that gives you an estimated average rate of 4.59% whereas the average rate for two 18-month fixes might be around 4.75%.”
Borrowers enjoy significant savings
Mortgage rates have dropped sharply from above 7% at their peak, providing relief for borrowers.
Someone with a $1 million mortgage would have seen their weekly payments fall from around $1,500 at 7.3% to $1,162 at 4.45%, based on a 30-year term.
Kiernan said locking in long-term certainty is now relatively inexpensive.
“At 4.99% for five years, fixing for that time now is only slightly more expensive than a one-year, then two two-year fixes,” he said. “So, the certainty offered by 4.99% doesn’t cost a lot more.”
Kiernan added, reflecting on earlier rate cycles: “Even professional forecasters can’t always get it right. I’ve learned to take the swings and roundabouts,” he said.
Competition heating up
Mortgage advisers say banks are competing more aggressively, often offering cash incentives rather than deeper rate cuts to attract new borrowers.
With multiple lenders now pricing fixed terms below 4.5%, competition in the home loan market is set to intensify heading into summer.
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