Lower rates ease stress as housing market steadies
Financial stability risks remain heightened, but New Zealand’s banks are well-equipped to handle economic shocks, the Reserve Bank (RBNZ) said in its November 2025 Financial Stability Report (FSR).
Reserve Bank Governor Christian Hawkesby (pictured) said financial stability risks remain heightened as the central bank releases its November 2025 Financial Stability Report.
“Financial stability risks remain higher than they’ve been in recent years,” RBNZ said in a media release. “This is because of global uncertainty and underperformance in parts of the New Zealand economy. Banks remain resilient to a range of shocks and are in a good position to support an economic recovery.”
Global headwinds and trade uncertainty weigh on outlook
RBNZ said global economic fragmentation, policy uncertainty, and trade tensions between the US and China continue to cloud the outlook for trading partners and exporters.
“Trade tensions present risks to our exporters and have affected business confidence,” the report said.
While many central banks are easing monetary policy in response to slowing growth and inflation, investor confidence remains fragile.
“Global equity prices have rebounded from earlier lows, driven largely by technology and AI firms,” RBNZ noted, warning that “equity prices could fall if earnings disappoint expectations.”
Domestic economy: Business stress uneven, agriculture supported
At home, persistent economic weakness is exposing some businesses to credit losses, especially those dependent on discretionary consumer spending.
“The non-performing share of business loans has increased but remains low compared to previous downturns,” the report said.
Business credit demand remains subdued as firms delay capital investment. However, lower interest rates and high agricultural export prices are helping offset pressure in some sectors.
RBNZ also noted that US tariffs on New Zealand imports have increased, but the impact is expected to be limited for standardised commodities such as meat.
“The impact of tariffs on incomes in our key trading partners and therefore demand for New Zealand exports remains a key risk,” it said.
Mortgage and housing conditions stabilising
After a prolonged slowdown, RBNZ said the housing market has remained broadly unchanged for three years, though sales have begun to lift. Lower debt-servicing costs are easing household stress as more borrowers reprice onto reduced rates.
“Mortgage debt-servicing costs are easing as borrowers reprice onto lower interest rates, and acute household stress has started to decline,” the report said.
Household credit demand is beginning to recover, and commercial property borrowers have benefited from lower interest rates, although vacancy risks persist.
To encourage lending and market confidence, RBNZ confirmed it will ease loan-to-value ratio (LVR) restrictions from Dec. 1, following the debt-to-income (DTI) limits introduced last year.
Banking system resilient amid weak credit growth
RBNZ said New Zealand’s financial institutions remain profitable and well-capitalised, with rising capital ratios and strong liquidity buffers.
“The 2025 solvency stress test shows that banks are positioned to absorb loan losses and continue to provide credit if economic conditions worsen,” the report said.
Banks representing 91% of national lending maintained solvency under multiple extreme scenarios in this year’s stress test — including a simulated liquidity crisis and cyber-attack — reinforcing system stability. RBNZ is now reviewing key capital requirements for deposit takers, with final decisions expected before year-end.
Banks are also competing more aggressively for lending opportunities, improving credit availability. Deposit levels have been supported by the Depositor Compensation Scheme, which became operational this year.
Insurance and cyber resilience improving
Property insurance premium growth has moderated as pressures in global reinsurance markets have eased — providing welcome relief for households and businesses. However, affordability concerns remain, especially in high-risk regions.
RBNZ also reported progress on cyber and operational resilience, noting that most regulated entities now align with central-bank guidance. These findings will inform future supervisory approaches and industry standards.
Outlook: Cautious confidence for lenders and advisers
For mortgage adviser, the FSR underscores a cautiously improving environment — with gradually recovering credit demand, easing mortgage costs, and regulatory adjustments likely to support activity into 2026.
But uncertainty remains. Global risks, uneven business recovery, and soft housing conditions mean lenders and borrowers alike should maintain prudent buffers. As RBNZ put it: “Financial stability is critical for ensuring that New Zealanders can safely save, borrow, and manage financial risk.”
Stay informed with the latest housing market trends and mortgage insights — subscribe to our free daily newsletter.
