How Low Will Mortgage Rates Go?

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 (16/08/24), the same rate is 6.97%.

But it seems peak mortgage pain has passed. Even before the RBNZ cut the OCR to 5.25% at its August Monetary Policy Committee meeting, banks had already started reducing their mortgage rates.

On Canstar’s database, the average 1-year rate has fallen from 7.49% at the beginning of the year, while 2- and 3-year fixed terms are also down, around 0.65%.

And provided that inflation behaves, the RBNZ is signalling more cuts are on the way. From the graph below you can see how dramatically the bank’s OCR predictions have softened since May.

RBNZ’s OCR Forecast

So given the RBNZ’s revised outlook, 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:

• ANZ: A 25bps cut at each future RBNZ meeting, down to a low of 3.5%, with shorter-term mortgage rates following the downwards trajectory.
• ASB: Expects steady 25bps cuts at every RBNZ meeting until OCR sits around 3.25%.
• BNZ: Further two cuts of 25bps this year, leading to a sub-4% OCR by the end of 2025 and the cash-rate to trough at 2.75% by early 2026.
• Kiwibank: A 25bps cut at every RBNZ OCR meeting well into 2026, to a low of 2.5%
• Westpac: Two more OCR cuts in 2024, and the OCR falling to 3.75% by the end of 2025.

For an overview of how OCR cuts are likely to feed through to mortgage rates, click here!

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 first OCR cut, the ANZ is happy to go along with the RBNZ’s forecast of a 25 basis points (bps) cut at each future OCR review meeting, down to a low of 3.5%.

While the ANZ says that shorter term mortgage rates should continue on a steady downward trajectory, too, it does add a caveat: for the cuts to continue, all the economic data must fall into place, i.e. falling inflation, weaker jobs data and a cooler housing market.

ASB

The ASB expects the RBNZ to continue cutting the OCR by 25bps at each of its next monetary policy meetings until the OCR falls back to a neutral level, which it forecasts as 3.25% in late 2025. However, ASB adds that the speed of cuts will, ultimately, be dictated by how quickly inflation continues to fall.

As a result, the bank says that the “important message” is that mortgage rates and deposit rates are on the way down and have further to go.

But in an earlier economic forecast, before the RBNZ’s recent cut to the OCR, the ASB did make an important point, noting that 5-year fixed mortgage rates are already below their 20-year average, so we shouldn’t expect much downward movement in long-term rates.

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

Based on the RBNZ’s forecasts, the BNZ predicts further cuts of 25bps at both of the RBNZ’s remaining policy meetings this year, and that the easing cycle will take the OCR sub-4% by the end of 2025.

However, the BNZ does forecast a lower base OCR than the other banks, and has the cash rate troughing at 2.75%. If this were to happen, it would translate to far lower mortgage rates for consumers than Westpac’s terminal OCR forecast would permit (see below).

Kiwibank

Kiwibank, which has long been calling for a lower OCR, welcomed the RBNZ’s 25bps cut. It predicts the move as the first in a 12-step process that will trim a total of 300bps from the OCR.

While Kiwibank says the RBNZ is aiming to hit a neutral rate of around 2.75%, it thinks the RBNZ will take it one step further and achieve an OCR of 2.5%.

In line with the ASB, Kiwibank sees short-term rates contracting 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
	• 5 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

Compare Travel Money Cards

Westpac

Westpac has long been one of the more hawkish banks, and it remains so when it comes to its OCR forecasts. The bank says that it expects two more OCR cuts in 2024, but that the pace of easing will slow in 2025. It also predicts the highest terminal rate for the OCR: 3.75% by the end of next year.

As you can see from the below graph, Westpac’s forecasts are above where market pricing sits. This means that while Westpac does expect shorter term interest rates to fall, it expects longer term pricing to sit slightly higher than current levels. This is in line with the ASB and Kiwibank’s comments about longer fixed-term mortgage rates.

Westpac’s OCR Forecast

Westpac’s OCR Rate & Wholesale Interest Rate Forecasts

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.