Check out JB's OCR & mortgage rates update below, or scroll down to read the full article:
On 27 November, the Reserve Bank (RBNZ) handed down its final Official Cash Rate (OCR) decision of the year—a 0.50% cut to take the OCR from 4.75% to 4.25%.
Although there was some speculation that the RBNZ may go even bigger this time, it’s the result the market was broadly expecting, and the change has already been largely priced into wholesale rates.
Alongside that OCR verdict, the RBNZ also shared its updated interest rate forecast for the year ahead.
It’s now factoring in a bigger decrease in February 2025—but otherwise, it’s plotting a series of slow and steady rate cuts over the remainder of the year, to get us back to a neutral OCR (of around 3.00%) by mid-2026.
In my view, that’s just too slow. With the economy still undeniably weak, and inflation well and truly dead, the RBNZ should arguably be on a mission to get us back to neutral as quickly as possible.
Given the RBNZ’s tendency to miss (and then revise) its forecasts, I wouldn’t read too much into it.
What does this week’s OCR decision mean for interest rates?
It really depends on which end of the fixed-rate spectrum you’re looking at.
The change will flow through to shorter-term rates relatively quickly, but there are certain global forces at play—specifically Trump’s re-election as US President—which look set to hold longer-term rates up higher than expected, at least in the near term.
Shorter-term rates
The one-year wholesale rate has been tracking downwards pretty steadily over the last month or so—a reflection of the market’s expectations for the OCR—and is now sitting at just over 3.8%.
Traditionally, banks have tended to set their mortgage rates based on a margin of between 1.50% and 1.80% above wholesale rates. But those margins have been running pretty fat of late.
In the weeks leading up to the OCR change, advertised one-year rates were sitting at 5.99%, with some banks willing to negotiate as low as 5.79%. That's a margin of somewhere between 2.00% and 2.20%.
So, there’s a bit of a question mark as to just how much of this latest reduction the banks will pass on to their customers.
I'm expecting one-year advertised rates to fall to around 5.79% and one-year negotiated rates at around 5.59% in the coming weeks. Then, as competition starts to heat up further, we should start to see those margins fall back within a normal range.
Bank margins on two year rates have (again) been running pretty high in recent weeks, with the best advertised rate in market at 5.65%, while the two-year swap rate is sitting at roughly 3.7%.
Given the RBNZ is still looking to mid-2026 before we’re back at a neutral OCR, it’s unlikely we’ll see much movement in the two-year wholesale rate (with this week’s drop already largely priced in).
Longer-term rates
While shorter-term rates are largely dictated by what’s expected to happen with the OCR, the forces that underpin longer-term rates are much more complex and globally focused.
Longer-term rates (between three and five years) have been tracking upwards following the US elections—with Trump’s planned introduction of new trade tariffs expected to have an inflationary impact for the global economy.
If you’ve read any of my recent updates, you’ll know that up until a couple of weeks ago, I was pretty adamant we were on track to see three-year mortgage rates below 5% by the end of the year. But, for now at least, I’d say that’s looking pretty unlikely.
The situation may change once Trump is back in the White House, and the markets have a better read on what his policies mean for the rest of the world.
In the meantime, though, all bets are on shorter-term rates as the best option for borrowers.
If you've been sitting on a floating rates over the last few months, waiting for further rate cuts, it's almost time to fix
Our advice to anyone rolling off a fixed term in recent weeks, or settling on a new property, has been to opt for a floating rate in the short-term in anticipation of being able to lock in at a better rate later in the year.
Once this latest OCR reduction has flowed through to shorter-term mortgage rates over the next week or so, that’s going to be the time to fix.
I’d caution against holding off any longer because there’s quite a big gap between this OCR announcement and the next, which is scheduled for 19 February 2025.
That’s almost three months away, and you just don’t want to be sitting on a really expensive floating rate—typically somewhere between 1.5% and 2% above fixed rates—for that long.
My recommendation for borrowers would be to lock in at a one-year fixed rate, with the knowledge and confidence that when that loan matures in late 2025, you should be rolling onto a much better rate.
If you'd like to speak to one of our expert advisers for further guidance on what's happening with interest rates—and the options that are right for you—get in touch for a chat today.