NZ Property and Mortgage Update: Rates Rise as First-Home Buyers Seize Flat Market

Executive Summary

New Zealand’s housing market is navigating a complex shift as rising wholesale borrowing costs push fixed mortgage rates higher following the Reserve Bank’s recent Official Cash Rate hike to 2.50%. Despite softer property values and retreating investors, first-home buyers are capitalising on the flat market to secure a record share of residential purchases.

Key Takeaways

• Annual inflation reached 4.1% in the June quarter, prompting forecasts that the RBNZ may continue raising the OCR.
• Rising wholesale swap rates are pushing lenders to increase fixed mortgage rates, with the two-year wholesale borrowing cost rising to 3.7%.
• First-home buyers claimed a record 28% market share in Q2, while investor lending fell 8.6% annually in June.
• The apartment sector is struggling, with 41.1% of nationwide apartment resales in early 2026 selling at a loss.

Market Breakdown

Inflation Pressures and Rising Mortgage Rates

The Reserve Bank of New Zealand (RBNZ) recently raised the Official Cash Rate (OCR) to 2.50%, and inflationary pressures indicate the tightening cycle is far from over. Annual inflation hit 4.1% in the June quarter, its highest level since late 2023, largely driven by surging fuel and electricity costs. Banks are warning that the OCR path could run hotter than initially forecast, with Westpac noting that further rate hikes remain a strong possibility for the second half of the year.

In response to rising wholesale borrowing costs, banks are preparing to lift fixed mortgage rates. The two-year swap rate has climbed to 3.7%, up from 3.35% just four weeks prior. While floating rates adjusted almost immediately to the RBNZ’s OCR hike, fixed rates—which are dictated by these wholesale markets—are now moving upward. Meanwhile, the Financial Markets Authority (FMA) has publicly scrutinised banks for unevenly passing on these rate changes, noting significant variations in how quickly lenders adjust both borrowing and savings rates.

Property Values Soften Amid Stock Overhang

The broader property market remains in a holding pattern. ANZ economists are maintaining their forecast of a 2% overall decline in house prices this year, citing subdued sales volumes and a general easing of prices mid-year. Sellers are facing a significant overhang of unsold stock, estimated at over 28,000 properties, giving buyers more leverage and choice.

The apartment market is experiencing particularly difficult conditions. Recent data shows that 41.1% of apartment resales nationwide sold for less than the owner’s original purchase price in the first quarter of 2026, with median losses in Auckland reaching $77,000 before agent fees. However, lower quartile house prices have held relatively steady at $585,000, putting them roughly on par with entry-level prices from five years ago.

First-Home Buyers Capitalise as Investors Retreat

Buyer demographics are shifting distinctly. June mortgage lending data from the RBNZ showed total new commitments eased slightly to $8.5 billion. However, first-home buyers are bucking the wider market trend, accounting for a record 28% market share in the second quarter. Affordability for this group is now primarily dictated by interest rates and wage changes rather than entry-level house price movements.

Conversely, property investors are stepping back. Mortgaged investors saw an 8.6% drop in lending year-on-year in June. Investors are currently weighing multiple headwinds, including the prospect of further tax changes, higher borrowing costs, weak rental yields, and rising council rates.

Summary

For borrowers currently deciding whether to fix or float, the immediate outlook points to higher borrowing costs across the board. With wholesale rates climbing and inflation remaining well above the RBNZ’s target band, locking in a fixed rate may provide necessary certainty before lenders fully pass on the latest wholesale increases. Meanwhile, prospective buyers are negotiating in a buyer’s market, making it an opportune time to carefully evaluate affordability against the backdrop of sustained higher interest rates.