More pain for borrowers ahead

Following the Reserve Bank’s (RBNZ) announcement yesterday Wednesday the 2nd of September that it was increasing the Official Cash Rate (OCR) to 2.75%, I thought you’d be interested in knowing what impact I see this having now on mortgage rates and property prices.

Yesterday’s increase of 25 basis points was expected given the current level of high inflation in New Zealand. Events overseas are partly to blame but the RBNZ’s continued belief that once global oil prices reduce inflation in NZ will simply fall back to their desired 2 percent target is misplaced. The trouble with this belief is that it ignores the fact that inflation has already been increasing since March 2025 and was sitting outside target at 3.1 percent before the conflict with Iran started. Many people including myself remain concerned about underlying high inflation in New Zealand and that the Reserve Bank has underestimated the inflation risk. Inflation has been increasing for one key reason – cost of living, and unfortunately, we have a Reserve Bank monetary policy committee which doesn’t understand cost of living pressures on everyday New Zealanders.

We have another two OCR decisions before the end of the year on the 28th of October & 9th of December. Unfortunately, the likelihood that we will see an OCR increase on both these two dates is high, especially with the latest CPI (inflation) stats due on the 22nd of October. Inflation currently sits at 4.1 percent, and all indications are that it will be at a similar level again in October when Stats NZ publish their data. Banks are likely to anticipate the direction that the OCR and inflation will be heading for the remainder of 2026. At this point in time, we have already seen one bank increase its advertised floating & variable rates by 0.25% albeit these changes don’t occur until the 9th & 23rd of September.

Based on the increases made to fixed mortgage rates in the past few months the banks obviously see the cost of borrowing becoming more expensive. People should consider a longer mortgage rate then if it’s appropriate for their own circumstances as it’s clear we're now well past the low point for mortgage rates in this current interest rate cycle. There are still some growth threats to the economy, but inflation concerns remain significant as well.

If we look at the current state of the housing market property prices have now been falling for four-and-a-half years on a national-average basis. It is the longest and deepest downturn in 46 years. Some of the fall can be viewed as a partial unwinding of the extraordinary price increases seen during 2021 and 2022. Although housing affordability is now at its best level in a decade, the average house still cost around 6 times the average household income. Someone asked me the other day is it a good time to be purchasing a property and I said, “yes, as long as it’s not for investment purposes”. In Wellington anybody purchasing a home needs to be aware that with either a centre right or centre left party forming the next government in November house prices in the Capital are likely to continue falling because of both parties stated policies.

There are currently just under 33,000 homes for sale nationwide and there were 8000 new listings in August, up 11.8 percent from three years ago. At the peak of the property market, after the Covid lockdowns, there were only about 12,500 homes listed for sale. New home purchasers have 45 percent more homes to choose from now than they did three years ago however if they delay in purchasing, they run the risk of been saddled with a higher mortgage rate. Likewise, vendors need to be cognisant of the fact that houses are now on average taking 65+ days to sell (those that find a buyer) and they need to meet the market in order sell. Rising mortgage rates coupled with an increasing oversupply of homes for sale are not going to see them realising a higher price for their property by delaying. With Spring just around the corner, the majority of people who list a house for sale do so during the warmer months, giving new home purchasers even more options to consider.

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