Home Loan Rates in New Zealand May Drop Below 4% Soon

Home loan interest rates in New Zealand are on a downward trend as the Reserve Bank of New Zealand continues to lower the official cash rate (OCR) and wholesale markets soften. With nearly half of all home loans either floating or up for refix within six months, many borrowers are questioning whether rates could soon fall below 4 percent.

Experts Weigh In on Future Rate Predictions

Some financial experts believe that a drop below 4 percent is indeed possible. David Cunningham, CEO of Squirrel, anticipates that if the OCR falls to 2.25 percent as expected, one-year fixed mortgage rates could dip under 4 percent by early 2026. He attributes this potential decrease to lower term deposit rates and cheaper bank funding.

“The key driver will be lower term deposit rates and cheaper bank funding,” Cunningham explained.

Additionally, Squirrel’s AI rate-prediction model indicates that sub-4 percent rates could be on the horizon. Cunningham noted that with banks often employing “charm pricing”—a strategy that includes rates such as 3.99 percent—at least one lender may act quickly to capture market attention.

Contrasting Opinions on Rate Feasibility

While some experts are optimistic, others express caution. Gareth Kiernan, chief forecaster at Infometrics, states that a rate below 4 percent is unlikely unless the OCR approaches 2 percent. He pointed out that in 2019, rates only fell below 4 percent when the OCR remained at 1.75 percent for over two years.

Kiernan elaborated that with current long-term rates anchored at higher levels, achieving a rate below 4 percent remains challenging. He stated, “Another 25 basis points off the OCR does not seem sufficient to lower wholesale rates enough to achieve that.” He believes that a significant drop in the OCR would be necessary to see rates below 4 percent from the major banks.

As borrowers remain hopeful for lower mortgage rates, economists continue to advise caution. The consensus is that the window for ultra-low rates may still be several months away. Kiernan has previously indicated that he expects home loan rates to begin increasing again around October next year, further complicating the landscape for prospective borrowers.

The ongoing fluctuations in interest rates are significant for many New Zealand homeowners and potential buyers as they navigate a changing financial environment. With nearly half of the outstanding loans needing to be refixed soon, the decisions made by lenders will have a lasting impact on the housing market.