Economy shrinks, Reserve Bank acts.

Following the Reserve Bank’s (RBNZ) announcement yesterday Wednesday the 8th of October that it was reducing the Official Cash Rate (OCR) to 2.5%, I thought you’d be interested in knowing what impact I see this having now on mortgage rates and the housing market.

Recent economic data shows that the NZ economy has contracted yet again. The Reserve Bank has thus decided the economy needs more help than it had previously forecast by cutting its official cash rate (OCR) by 50 basis points to 2.5%. This now moves the OCR into stimulatory territory to try and kick-start growth and hopefully engineer an economic recovery.

This decision comes despite the annual consumers price index hovering near the top of its 1% to 3% target range, and it appears the central bank is more concerned about cautious behaviour by households and businesses slowing the recovery than it is by inflation getting out of control again. Despite stating that it believes inflation will reduce to 2% early next year it’s hard to understand why domestic inflation would suddenly start to decrease. Not when many homeowners around the country have just experienced a double digit increase to their local council rates. You don’t have to be an economist to understand that many Kiwis are now struggling with cost-of-living pressures and that these monthly costs continue to increase with most been inflationary.

For anybody with a mortgage it remains their single biggest financial commitment and whilst this OCR reduction is good news for borrowers it could also become a double-edge sword in 2026. The most recent forecast was for the OCR to begin increasing after next year’s general election and consequently mortgage rates were also expected to increase. This could happen sooner now because of yesterday’s announcement. The Reserve Bank has a track record of failing to understand inflationary pressures on the NZ economy and then been forced to put the brakes on quickly, hence interest rates start increasing. This makes it very hard currently for borrowers in New Zealand to decide on an appropriate strategy when deciding how long to fix their loan repayments for. The new Reserve Bank Governor Dr Anna Breman said a few weeks ago that she will be focussed primarily on combating inflation and providing some stability now to borrowers. Based on these comments many people don’t believe current mortgage rates will become significantly cheaper once she takes the reins on the 1^st of December.

As I see things currently borrowers have two options available to them, fix for 6 or 12 months on the basis that you think the Reserve Bank will need to reduce the OCR further in the coming months to try and stimulate the economy or fix for a longer fixed term i.e. 2+ years to secure one of the good longer fixed terms now available to give you certainty with your repayments. Ultimately you need to decide what fixed term is best for you based on your own financial circumstances.

In terms of how the housing market is currently performing agents are reporting that there are fewer buyers nationally and attendances at open homes have gone quiet in Wellington. Some Wellington salespeople are opting to conduct open home viewings by appointment only after several low numbers were recorded in the last month. It’s taking longer to sell properties (especially in the capital) at an average of 51 days compared to the national average of 48 and the median price was 6.9% compared to the same time last year. The national median value now sits at $810,141, following a cumulative 1.6% drop over the five months between April and August. Tauranga recorded the strongest growth among main centres in September, rising 1.3%, while Christchurch lifted 0.6% and Dunedin increased 0.3%. Hamilton remained flat, while Auckland dipped 0.2% and Wellington fell 0.4%.

While NZ house prices seem set to end this year little changed, there is growing scope for values to start rising in 2026 albeit a fresh boom seems unlikely – especially with the economy and labour market only set to recover slowly. The current surplus of homes available for sale, as well as the lurking restraint of debt-to-income ratio (DTI) limits for mortgage lending are other reasons for caution about house price growth over the medium term. Overall, across the country confidence in the property market remains low. First home buyers remain the most active buyer group although salespeople are reporting that there are fewer of these buyers also. Many potential home buyers whilst looking for properties are not actually purchasing and expectations of house prices increasing in 2026 remain tempered with caution.

Please let me know if you would like to discuss the current mortgage rate that you are on with your bank or are needing assistance with finance to purchase a new property or to refinance.

Kind Regards

Simon