Some banks – including ASB, ANZ and Westpac – are expecting rates to drop further in the coming months, given the Reserve Bank of New Zealand has left the door open to a lower or even negative official cash rate (OCR) next year. Currently, the OCR sits at 0.25 per cent.

So, what will it mean for mortgages? Here’s a quick overview of what’s happening in the lending environment.

OCR set to hit ‘negative territory’ soon

In their August meeting, the RBNZ made clear that a negative OCR cut may be in the pipeline for New Zealand, depending on the outlook for inflation and employment.

“Monetary policy will continue to provide important economic support in the period ahead,” the statement reads. “Its effectiveness is evidenced by retail banks’ lower funding costs and lending rates, which are benefiting businesses and households.”

In the aftermath of the announcement, some economists have reviewed their forecasts. ANZ economists Sharon Zollner and David Croy expect the OCR to hit -0.25 per cent in April 2021. ASB economists think the OCR may drop at -0.5 percent in early 2021, with no return above zero until 2024. Similar views have been expressed by economists at Westpac, who expect the RBNZ to cut the OCR to -0.5 per cent in April 2021.

Will mortgage rates fall further?

You may be wondering what will happen to mortgage rates over the next few months.

The RBNZ encouraged banks to pass on the benefits of lower funding costs to their customers, in line with their own ‘long-term interests’. But the big four banks have so far cautioned against major drops.

According to Westpac, an OCR cut from 0.25 to -0.5 per cent may only translate into a mortgage rate reduction of about 30 to 40 basis points.

ASB analysts echoed the same sentiment: “Competition between lenders is always in the mix putting pressure on mortgage rates, so tweaks lower on particular terms are always on the cards. In saying all this, we stress that we think the large falls in mortgage rates have already occurred over the past couple of years.”

Time to refix your mortgage?

Things are changing fast, so if your fixed mortgage rate is due for renewal soon, we welcome you to contact us.

The choice between locking in for a short or a longer term entirely depends on your plans. We can help you look at your mortgage structure and liaise with the lender on your behalf.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.