New Zealand Property and Mortgage Update: Affordability Returns as OCR Stabilises

Executive Summary

New Zealand housing affordability has successfully returned to its long-term average, driven by easing property values and rising household incomes over recent years. Concurrently, major banks are advising borrowers to consider locking in fixed mortgage rates as the Official Cash Rate (OCR) trajectory stabilises around 2.5%.

Key Takeaways

• Housing affordability has improved across all major measures, with Wellington and Auckland value-to-income ratios dropping below historical benchmarks.
• In the second quarter of 2026, 87% of property sellers made a gross profit, though 13% sold at a loss—primarily those who purchased at the 2021-2022 market peak.
• One-year-ahead inflation expectations have dropped sharply to 2.6%, easing the pressure on the Reserve Bank for aggressive future rate hikes.
• Banks like ASB and Kiwibank are encouraging borrowers to fix their mortgage rates now to insulate against potential minor increases, with 2-to-5-year fixed terms sitting above 5%.

Market Breakdown

Housing Affordability Reaches Pre-Pandemic Norms

According to Cotality’s Housing Affordability Report released on August 19, 2026, conditions improved across every major measure in the June quarter. New Zealand’s housing affordability has returned to its long-term average, unwinding the deterioration seen during the pandemic. The time required to save a deposit and rental affordability have hit their most favourable levels in almost ten years. Regionally, Auckland’s value-to-income ratio fell to 7.2 (below its 7.5 historical average), while Wellington recorded the lowest ratio among main centres at 5.5.

Property Sales and Profitability Trends

Despite 13% of properties selling at a loss in Q2 2026—typically those held for just 4.3 years after buying at the market peak—the vast majority of vendors remain in a strong position. Cotality’s Q2 Pain and Gain report noted that 87% of sellers made a gross profit, with a median gain of $280,000. Sales activity has also shown signs of growth, with July 2026 data indicating a 14.5% year-on-year increase in total properties sold, even as the broader market tracks sideways ahead of the upcoming election.

Economic Pressures and Inflation Data

Consumers continue to face challenging broader economic conditions. Unemployment rose to 5.6% in the June quarter, and wage growth of approximately 2% is currently trailing the 4.1% annual inflation rate. However, the Reserve Bank’s Q3 Survey of Expectations provided a positive signal, showing one-year-ahead inflation expectations falling sharply to 2.6%, down from 3.41% in the previous quarter.

Summary

For borrowers deciding between fixing or floating their mortgage, the current data strongly favours fixing. With 2-to-5-year fixed rates sitting above 5% and the OCR currently at 2.5%, banks like ASB and Kiwibank suggest that locking in a fixed rate provides necessary insulation. While inflation expectations are falling, ongoing global volatility and the potential for the OCR to reach 3% by the end of the year mean that fixing now offers certainty and protection against lingering upward rate risks.