NZ fixed mortgage rates dip below 5%, but global differences reveal deeper cost drivers
New Zealand’s home loan rates have been easing in recent weeks, with more lenders offering fixed rates under 5% following the Reserve Bank’s official cash rate cut and softening wholesale rates.
But how do these rates stack up against those in other parts of the world?
NZ rates fall below 5%, but Aussies still pay more
In New Zealand, ANZ is offering a two-year fixed rate of 4.99%.
Across the Tasman, however, the same bank is offering a two-year fixed rate of 5.74% for Australian borrowers. Australia’s OCR currently sits at 4.1%, compared to New Zealand’s 3.5%.
For floating rate loans, ANZ charges 6.99% in Australia and 6.69% in New Zealand, RNZ reported.
Comparing home loan rates around the world
Outside Australasia, the spread of mortgage rates remains broad:
- UK: HSBC offers a two-year fixed rate at 4.25% for first-home buyers. Floating rates are around 6.74%, while a five-year fix is just 4.1%.
- US: A 30-year fixed mortgage is sitting at 6.7%, and a 15-year fixed at 5.96%.
- Fiji: A one-year fixed loan is offered at 3.95%.
- Canada: Three-year fixed mortgage rates are about 4.29%.
- Sweden: Two-year fixed home loans are currently at 3.49%.
- Japan: A standout globally, with 10-year fixed rates at just 1.89%.
Why it’s hard to compare mortgage rates globally
Kelly Eckhold (pictured left), chief economist at Westpac, said the structure of rates depends heavily on borrower preferences and market norms in each country, RNZ reported.
“In the US, everybody goes for very long-term fixed rates,” Eckhold said. “In Australia, it’s predominantly floating. In the UK, floating rate products are tied to the Bank of England base rate… it depends on the country.”
David Cunningham (pictured centre), CEO of mortgage broking firm Squirrel, said cross-country comparisons are challenging due to differences in funding structures and banking regulations.
“Whereas like New Zealand we’ve got quite a different dynamic,” Cunningham said. “Banks tend to pay less on savings accounts and a lot more on term investments… So all those dynamics are done on that side. That’s one thing. And the second thing is bank capital rules.
“So in New Zealand banks have to hold a truckload more capital than they do in Australia… so you're holding more capital, you’ve got to earn more money to justify having that capital deployed that way.”
NZ’s fixed-rate culture is unique in the world
Cunningham said New Zealand’s market has evolved differently over time, with borrowers favouring fixed over floating — a reversal of earlier trends.
“Then it became, you know, it was more than a few people and eventually it became the whole market was fixed rates at low margins and the floating margins ...people don’t seem to care what their interest rate is there.
“So those margins expanded while fixed margins contracted. So we’ve got this really weird and globally unique situation, in New Zealand, where margins on floating rate loans are about, well sometimes double the margins on fixed rate loans and that's why almost everyone in New Zealand has a fixed rate whereas in Australia, by comparison almost everyone’s on floating.”
Why NZ rates may stay higher than other countries’
According to Cunningham, the downward trend in interest margins for NZ banks ended around the time of the pandemic, and global financial tightening only reinforced that shift.
“Every market is a bit different, which again makes comparing between markets really difficult, but I think the underlying thing I’d say is the down long-term downward trend in interest margins and banking in New Zealand stopped three or four years ago… that was when COVID happened and interest rates got really low,” he said.
But the underpinning thing is, you know, banks have to hold a lot more capital than anywhere else in the world, pretty much.”
Kiwibank chief economist Jarrod Kerr (pictured right) also pointed to capital rules as a key differentiator.
“The higher capital requirements here probably meant that New Zealand interest rates were higher internationally over the course of a cycle.”
What it means for Kiwi borrowers
While fixed mortgage rates in New Zealand are falling, comparisons with other countries are complex and heavily influenced by structural differences, from regulatory capital requirements to the way retail banks source funding, RNZ reported.
Borrowers here may see further relief if rate cuts continue, but according to experts, the underlying structure of the NZ mortgage market will continue to set it apart — particularly its heavy reliance on short-term fixed rates and relatively high capital requirements.
