The Official Cash Rate (OCR) cut by the RBNZ on August 14th has at last seen the start of significant mortgage rate cuts. The OCR cut was only 0.25% but has triggered around a 0.50% fall in mortgage rates due to expectations of further rate cuts to come. The 1 year rate is now around 6.5% rather than 7%.
The RBNZ has also signalled further cuts to come, and so the question now is how far and how fast.
ANZ are now projecting a 1 year fixed rate of 5.3% by June 2025, a further 1.20% drop in just 9 months. This is much faster than earlier projected and due to the poor state and outlook of the NZ economy. And so by the 2nd half of 2025 we could be re-fixing at rates close to 5%. Hopefully there will be further drops, but these will probably be much slower.
Keep in mind that these are only projections and that the timing of the actual cuts will depend on how factors such as the rate of inflation pan out over this time. Please also keep in mind that it will take time for borrowers to benefit from these new rates as loans roll off their existing fixed rates over the next 12 months. The 6 month rate remains high at 6.85% and the floating rate remains much higher at around 8%.
The lower rates will encourage buyers to return to the housing market, both home buyers and investors. So it is likely that house prices will soon start to rise. However the speed of any rises will be constrained by a number of factors such as a weak economy, falling migration and a larger construction sector ready to respond to any increase in demand. As always please feel free to get in touch with any mortgage related questions. Bring on the warmer weather.
