Floating rates drop, fixed rates hold — for now
Following the Reserve Bank’s decision to reduce the official cash rate by 25 basis points, New Zealand’s major banks were quick to respond with cuts to their floating mortgage rates.
However, fixed-term rates have yet to follow, with most still sitting between 5.19% and 5.29% for one-year terms, and 4.99% for two years.
At their peak, special fixed rates were well above 7%, highlighting how far they’ve already come down. But economists say there’s still room for further movement, RNZ reported.
Further fixed rate cuts likely on the horizon
David Cunningham (pictured left), chief executive at Squirrel, expects fixed rates could fall more in the near term.
“One- and three-year rates might move to match the 4.99% rate in the next week or two,” Cunningham said.
He added that more competition among lenders could bring rates even lower.
“Beyond that, a drift down towards 4.75% in the one- or two-year terms will probably take a month or two and will be driven by competition,” Cunningham said.
Earlier, Westpac briefly offered a 4.99% three-year fixed rate but later withdrew the offer.
Economists say lower rates make sense
Simplicity chief economist Shamubeel Eaqub (pictured centre) pointed out that current swap rates — the rates banks pay for short-term funding — support fixed mortgage rates below 5%.
“With swap rates close to 3%, fixed rates just under 5% would make sense,” Eaqub said.
Market conditions are shifting in borrowers’ favour
Infometrics chief forecaster Gareth Kiernan (pictured right) added that even though bond yields recently ticked up, the overall trend in swap rates has been downward, applying renewed pressure on banks to reduce retail lending rates.
“Banks might be holding off to see where the dust settles, but I’d expect to see cuts of around 20 basis points across all fixed rates coming through next week if swap rates remain around where they currently are,” Kiernan said.
Indeed, one-year swap rates have declined from nearly 3.7% in mid-January to just over 3%, and two-year rates have seen a similar fall.
Refix activity remains strong as lending holds steady
Despite slightly subdued mortgage activity in early 2025, borrowing remains solid.
In February, new mortgage lending hit $5.8 billion, slightly below December figures but nearly $1bn more than February 2024.
Recent Reserve Bank data showed that in February, while most homeowners preferred short-term and floating mortgage rates, there was a notable shift towards two-year fixed terms—rising to 11.2% of new loans from 4.9% in January—following RBNZ’s 50 basis point OCR cut to 3.75%.
With most existing home loans set to refix within the next year, a broad shift to lower fixed rates would offer significant relief to mortgage holders navigating uncertain economic conditions.
As swap rates stabilise and competition intensifies, banks are expected to follow through with further fixed rate reductions in the weeks ahead, RNZ reported.
