How will the RBNZ’s rate cuts impact the home loans market?

The Reserve Bank of New Zealand (RBNZ) reduced the official cash rate (OCR) by a combined 0.75 percentage points at its monetary policy meetings in August and October, with further cuts possible at its next meeting, in late November. This is likely to impact the market in three main ways.

First, home loans will become cheaper due to the reduced rates. Banks have already lowered their mortgage rates – and some individual lenders might choose to make further reductions, on top of anything the RBNZ might do.

However, even though rates are trending down, it's important to be realistic.

Mortgage rates are highly unlikely to return to the record-low levels we saw during the pandemic. Rather, they're more likely to return to levels we've seen in the past, which might be something with a 4 or 5 in front of it. Also, any reductions that do occur are likely to take place in a gradual fashion, rather than all at once.

So please budget accordingly.

Higher borrowing capacities, more refinancing

The second likely impact of the recent, and potential future, rate cuts is that the average consumer will find it easier to service a mortgage, which means their borrowing capacity will increase. That may lead to more property buyer activity, putting upward pressure on prices.

The third thing to be across is that, as interest rates fall, refinancing will become more popular. Large movements in interest rates can lead to market shake-ups, as some lenders make larger rate cuts than others. As a result, borrowers who are on floating rates might be tempted to switch lenders immediately; while borrowers who are on fixed rates might look for alternatives once their fixed-rate terms come to an end.

Expert advice is available

At times like these, it’s good to have a mortgage adviser in your corner.

If you’re thinking about buying a property, I can calculate your new borrowing capacity and also estimate what your future borrowing capacity might be if rates fall further.

If you’re wondering whether your home loan is still competitive in the current market, I can compare home loans for you and advise you on whether refinancing would make sense.