Between November 2021 and May 2023, the Reserve Bank (RBNZ) lifted the Official Cash Rate (OCR) from its all-time low of 0.25% to 5.50% – a level not seen since before the GFC, in 2008.
As a result, these increases in the cost of borrowing flowed through to mortgage rates. In August 2021, the average one-year fixed rate for owner-occupiers on Canstar’s mortgage database was 2.58%. At time of writing (18/10/24), the same rate is 6.29%.
But for those about to commit to a new home loan or refinance, it’s clear peak mortgage pain has passed. Over the past two months, the RBNZ has cut the OCR twice, from 5.5% to 4.75%, and the banks have already started reducing their mortgage rates.
On Canstar’s database, so far this year, average fixed rates across one to three years are down around 1.2%.
And now that inflation appears to be back in its cage, sitting close to the RBNZ’s target of 2.2%, economists are predicting further cuts to the OCR to be announced in each of the RBNZ’s next two Monetary Policy Statements, in November and next year in February.
So given the RBNZ’s rate cuts, what are the major banks predicating will happen to the OCR over the coming months and, inevitably, how will that feed through to mortgage rates? Let’s take a look!
Below is a quick overview of the banks’ OCR forecasts. Click on each bank’s name to jump to a more detailed overview of its predictions. And click here to see where, historically, mortgage rates have sat in relation to the OCR.
- ANZ: At least a 50bp cut in November, possible 75bp if unemployment figures rise. Further cuts throughout next year until the OCR is in mid 3-4% range.
- ASB: Expects a 50bp cut in November, but isn’t ruling out 75bp if the economy weakens. Expects short-term mortgage rates (1-2 years) to continue to fall over next two years as OCR falls to neutral setting of 3-4%, while longer-term fixed rates will remain flat.
- BNZ: A 50bp reduction in November, followed by 25bp cuts at each subsequent meeting until the OCR hits 2.75%, by mid 2025.
- Kiwibank: A 50bp cut in November, then a 25bp cut at each RBNZ OCR meeting to a low of 2.5%.
- Westpac: Another 50bp shaved off the OCR in November, and the OCR falling to 3.75% by the end of 2025.
Lowest Mortgage Rates for Refinancing
Looking to refinance your mortgage? The table below displays some of the 1-year fixed-rate home loans on our database (some may have links to lenders’ websites) that are available for home owners looking to refinance. This table is sorted by current interest rates (lowest to highest), followed by company name (alphabetical). Products shown are principal and interest home loans available for a loan amount of $500K in Auckland. Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products. Canstar may earn a fee for referrals.
Compare Lowest Home Loan Rates for Refinancing
ANZ
Of all the banks over the past two years, the ANZ has been the most hawkish on interest rates. Indeed, early this year in its February Property Focus, it was predicting two more OCR hikes and the possibility that mortgage rates could creep even higher.
But on the back of the RBNZ’s existing rate cuts and given that inflation is back in its target band, ANZ says that it doesn’t see anything in the data that will deter the RBNZ from delivering another 50bp cut in November, and perhaps even 75bp, should the labour market deteriorate further.
Going into next year the bank sees the OCR dropping to its neutral range of between 3-4%, although how quickly we get there will depend on whether domestic inflation remains subdued.
ASB
The ASB expects the RBNZ to cut the OCR by another 50bp in November, followed by smaller downward adjustments throughout 2025 until it hits a neutral setting of between 3-4%. However, it does note that if the economic data remains weak, a large cut of 75bp could be required.
However, as the tables below show, while the ASB thinks it’ll take around two years for short-term rates to bottom out, long-term rates of between 4-5 years are unlikely to reduce further, as they are already below 20-year averages.
Searching for the Cheapest Personal Loan?
If you’re looking for the cheapest personal loan, Canstar’s personal loan comparison tables can help. The table below displays the sponsored unsecured personal loan products available on Canstar’s database for a three-year loan of $10,000 in Auckland, with links to lenders’ websites. Use Canstar’s personal loan comparison selector to view a wider range of products on Canstar’s database. Canstar may earn a fee for referrals.
BNZ
While the bank acknowledges that markets have priced in a 40% chance of a 75bp cut in November, it thinks this unlikely. Rather, it believes the RBNZ has already indicated that it’s fully aware of the worsening economic data, hence the 50bp cut in October, when it had previously indicated that 25bp was on the cards.
Forecasting another 50bp cut in November, after that the BNZ sees the RBNZ hastening its rate cuts, applying a further 25bp cut at each of its meetings through to July 2025, by which time the OCR will be down to 2.75%
Kiwibank
Kiwibank, which has long been calling for a lower OCR, welcomed the RBNZ’s 50bp rate cut in October. But says more reductions are needed, and quickly, if the country’s economy is going to get out of the doldrums.
The bank’s economists state that because the economy is operating below its productive capacity and inflation has cooled, the “RBNZ needs to lift its foot off the brake. We need a full reversal back to neutral, and that’s below 3%”. After another 50bp in November, Kiwibank sees rate cuts continuing at subsequent meetings throughout 2025.
And in line with the ASB, Kiwibank predicts short-term rates will contract more markedly than long-term rates. It notes that, generally, short-term rates fall further than long-term rates during interest rate cutting cycles.
Compare Travel Money Cards
Headed off overseas and looking for the best in money cards? Here’s a rundown of some of the most popular cards in New Zealand:
| Provider | Key Features | Main Fees |
|
• 37 currencies • Spend in 150+ countries • Free physical and virtual card (delivery fees apply for physical card) • Use anywhere Visa is accepted |
• No monthly fees (standard account) • Fee-free, instant transfers between Revolut users • Fee-free top ups for bank transfers and debit cards • Fee-free FX within market hours and plan allowance* |
  |
• 9 Currencies • Earn Airpoints Dollars • Use wherever Mastercard is accepted • OneSmart app |
• No load/reload fee for bank transfers • Monthly fee: NZD $1 (if funds in account) |
 |
• 10 Currencies • Use wherever Mastercard is accepted • Cash Passport app |
• No load/reload fee for bank transfers • No monthly fee |
 |
• 9 Currencies • Use wherever Mastercard is accepted |
• No load/reload fee for bank transfers • No monthly fee |
 |
• 40+ Currencies • 2 free ATM withdrawals of up to NZ$350 per month |
• Receive and add money to your Wise Account for free • Physical card $14 one-off fee |
 |
• 9 Currencies • Use wherever Mastercard is accepted • Mastercard Priceless Cities benefits |
• Free overseas ATM withdrawals • No load/reload fee for bank transfers • No monthly fee |
The display order does not reflect any ranking or rating by Canstar. This information is not an endorsement by Canstar of travel money cards or any specific provider. Information correct as of 05/09/24. For full pricing details see individual providers’ websites. *Weekend fee will apply outside exchange market hours if it is made between Friday 5pm (New York time) and Sunday 6pm (New York time), which is a US based time zone
Westpac
Due to the latest figures, which reveal inflation’s back in the RBNZ’s target band, Westpac says that it expects “the RBNZ will deliver another jumbo-sized 50bp cut in November, with further but more gradual cuts next year”. And by midway through 2025, the bank thinks that the OCR will hit a low of 3.75%.
Similar to ASB and Kiwibank, Westpac says that the predicted cuts to the OCR next year have already been factored into longer-term rates of two years and over, which makes them an attractive option. Short-term rates, meanwhile, will fall over coming months as additional OCR cuts occur.
Westpac’s OCR Forecast
Mortgage Rates vs OCR
As you can see from the graph below, in the five years in the lead-up to the pandemic, mortgage rates were pretty stable, as was the OCR, which sat around 2%. During the same period, 1-year mortgage rates were around 5% and 2-year terms around 5.3%.
Looking at the banks’ predictions, they see the OCR settling between 2.5% and 3.75% over the next two years. So on those forecasts, where can we expect interest rates to settle?
If we take a rough mid-point of 3.5%, the last time the OCR was at a stable 3.5% was in the period from July 2014 to May 2015, and during that time the average 1-year rate was approx 5.9%, and the average 2-year mortgage rate was 6.1%.
These are the banks’ standard carded rates, and if you’ve a 20%-plus deposit and a good credit history, you’re very likely to qualify for a lower special rate.
But, ultimately, while the OCR is on the way down, along with mortgage rates, it’s important to remember that the ultra-low rates that some lucky homeowners managed to lock in during the pandemic were outliers, and that historical average 1- and 2-year mortgage rates of between 5% and 6% are likely to be the future, too.
About the author of this page
This report was written by Canstar’s Editor, Bruce Pitchers. Bruce has three decades’ experience as a journalist and has worked for major media companies in the UK and Australasia, including ACP, Bauer Media Group, Fairfax, Pacific Magazines, News Corp and TVNZ. Prior to Canstar, he worked as a freelancer, including for The Australian Financial Review, the NZ Financial Markets Authority, and for real estate companies on both sides of the Tasman.
Share this article