BNZ: Falling interest rates to boost mortgage savings as housing market heats up
Falling interest rates are set to put billions back into Kiwi mortgage holders’ pockets, BNZ says — a forecast that coincides with the housing market’s busiest start to the year since 2021, signalling renewed borrower confidence.
Lower interest rates to bring major relief for mortgage borrowers
BNZ said a steady decline in home loan interest rates is expected to deliver $2.2 billion in savings to New Zealand mortgage holders over the next six to 12 months.
The average two-year special rate has already dropped from just under 7% to around 5%, while the official cash rate (OCR) is down from its peak of 5.5% to 3.5%. But BNZ chief economist Mike Jones (pictured) noted that the effects of this shift aren’t being felt immediately, RNZ reported.
“It takes a while for those lower rates we've been seeing over the past six months or so to flow through to householder or mortgage borrower pockets, so most of the cashflow is still to come,” Jones said.
He said the delay in the benefits being felt is part of the reason the economy remains sluggish.
Where the money goes will shape economic recovery
Jones said the key question is how households will use the additional cash. While some funds will be used to pay down existing bills, he expects a gradual increase in discretionary spending.
“Households have been sacrificing in those areas to keep paying the bills,” he said. “With that cashflow coming in, maybe a bit more of that goes into hospitality spending, travel, tourism, bits and pieces like that. Not a rush but more than we are seeing today.”
However, he warned that consumer caution remains due to concerns around the labour market and international instability.
“What we see is that any category that has some discretionary element to it has been one that people have pulled back on – durables, hospitality, travel,” Jones said.
“We’ve seen spending on things like utilities, government charges, health and education much stronger. That’s not something that we expect to see reverse very quickly, but there may be a bit more going into discretionary areas.”
Inflation still casts a shadow over recovery
Despite easing price pressures, inflation continues to influence household decision-making.
Jones said economic growth would remain “slow and low,” although the outlook is more positive compared to last year’s recessionary period.
“It’s quite a change from last year when we saw quite a nasty recession through the middle of the year.”
Looking ahead, Jones forecast a further drop in the OCR, possibly to 2.75%, RNZ reported.
