With the Official Cash Rate (OCR) currently at 3.50%, we’re finally within striking distance of the Reserve Bank’s estimated ‘neutral’ OCR—one which neither stimulates nor restricts the economy—of 3.00%.
In recent weeks though, all the global volatility we’re seeing (particularly as a result of Trump’s sweeping trade tariffs and the prospect of lower global economic growth) has sparked expectations that interest rates could get even lower.
The market is now widely predicting another three OCR cuts to come over the next few months, wiping a further 0.75% off the OCR and taking it down to 2.75%.
If the OCR does get down to 2.75%, we could see mortgage rates drop as low as 4.50%. Given one- and two-year fixed rates are sitting at 4.99% already, they’re getting pretty close to the bottom—but they could just have a little bit further to fall.
What does that mean for borrowers?
In the current environment, what’s right for each individual borrower really depends on their personal situation and their risk appetite.
A measured approach would be to look at splitting your loan, and fixing it across a couple of different terms—which just ensures that, when the time comes, you’re not faced with a scenario where your entire mortgage balance is maturing at once.
That could look like fixing part of your loan for two years at 4.99%, and then perhaps fixing the remainder on a slightly shorter term—with the knowledge that when that shorter-term loan rolls over, rates may have fallen a bit further.
It’s always a good idea to chat to a mortgage adviser who can talk you through your options and help you determine which strategy is right for you.
Check in again next week for the latest news on New Zealand interest rates.
