Final OCR reduction for 2025 (& 2026?)

Following the Reserve Bank’s (RBNZ) announcement yesterday Wednesday the 26th of November that it was reducing the Official Cash Rate (OCR) to 2.25%, I thought you’d be interested in knowing what impact I see this having now on mortgage rates and the housing market.

With the Reserve Bank saying it expects inflation to fall to around 2% by mid-2026 (currently inflation is sitting at 3% and at upper end of the RBNZ’s 1-3% target band) the bank believes another reduction to the OCR is warranted to improve stimulus to strengthen the economy. Unfortunately, this reduction to the OCR yesterday means mortgage rates may have to increase sooner than was necessary. As one well known economist said recently;

The established tendency of our central bank is to tighten too late then tighten too much, and after that ease too late then ease too much. What does that mean? The chances are good that they are again injecting extra stimulus into our economy when it does not need it given the factors already set to strengthen in impact through 2026 and 2027. That will set the scene for some eventually greater than expected tightening of monetary policy.

It’s a bit early to say what impact this latest reduction to the OCR will have on advertised mortgage rates however based on past trends it's likely we'll see the banks passing along the bulk of the 0.25% reduction to their advertised floating rates but making only minimal reductions to their fixed terms. Currently the banks seem more comfortable with significantly increased cash contributions been offered to customers than substantial discounts applied to advertised fixed rates. With many economists stating that they see further OCR reductions only likely now if conditions in the economy worsened, we may be at the end of this current interest rate cycle. This has been said before this year however inflation will need to start reducing soon otherwise it’s hard to see why the cost of borrowing money would become any cheaper. Across the Tasman the Reserve Bank of Australia had just recently delayed an OCR cut there sighting concerns about inflation.

Some key dates for borrowers to watch out for next year are:

23^rd January - the next CPI (inflation) stats due from Stats NZ.

18^th February - the first scheduled OCR review due for 2026 and the first from our new incoming Reserve Bank Governor.

In terms of where the housing market currently sits as we near the end of 2025 across the country 12.2% of resales were at a loss, the highest level since mid-2013 (a 12 year low) as a soft market, long hold periods, and firm buyer expectations continue to shape seller outcomes. The median loss was $50,000 and in Wellington 15.8% of properties made a loss, in Hamilton it was 15.5%, Tauranga 10.8%, Dunedin 10% and Christchurch, just 5.5%. While gains remain substantial for 87.8% of resales, at a median of $270,000, apartments and major centres, such as Auckland and Welington have the highest loss rates, with Queenstown Lakes continuing to outperform. Standalone houses continued to outperform apartments in the third quarter, although both property types softened. Affordability (or lack of ) has been the key driver of the activity witnessed in the housing market during 2025. Most banks had been confidently predicting house prices would rise by 5% this year. All have now had to revise down their earlier forecasts.

Even if sales activity improves values remain well below their peak and listings are still high by past standards. Vendors may need to meet the market, but gains will remain substantial for those who have held for a long period. Most owner-occupiers won’t see a cash windfall, as equity generally rolls straight into the next purchase unless they’re downsizing or moving to a cheaper location. Property resellers may fare better in 2026, although a rapid turnaround looks unlikely. Upcoming reductions in mortgage loan-to-value ratio (LVR) requirements are unlikely to have much of an effect on house prices, especially with debt-to-income (DTI) restrictions now in place.

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