New Zealand Property Market Update: First Home Buyers Surge as OCR Hike Looms

Executive Summary

New Zealand’s property market is experiencing a significant shift as falling house prices improve affordability for first-home buyers, despite the persistent upward pressure of rising mortgage rates. Meanwhile, economists widely anticipate the Reserve Bank will raise the Official Cash Rate (OCR) by 25 basis points to 2.75% in September, signaling further tightening for borrowers.

Key Takeaways

• First-home buyers have reached a record 29% market share, taking advantage of lower quartile house price declines.
• New mortgage commitments fell 7% to $7.9 billion in July, reflecting broader market caution and reduced investor activity.
• Major banks are forecasting a 25 basis point OCR hike to 2.75% next week, with potential for rates to near 4% by 2027.
• Lower quartile house prices dropped to $575,000 nationally, providing modest weekly mortgage savings for new entrants despite higher interest rates.

Market Breakdown

Recent market data reveals a clear divergence between cautious investors and opportunistic first-home buyers, all set against a backdrop of imminent monetary tightening.

Record First-Home Buyer Activity

Despite a sluggish overall market, first-home buyers are seizing current conditions. Cotality’s August Monthly Housing Chart Pack reveals that first-home buyers now account for a record 29% of the market share. This surge is heavily supported by falling entry-level house prices. The Real Estate Institute of New Zealand (REINZ) reported that the national lower quartile selling price fell to $575,000 in July, marking its lowest point since January 2025. In Auckland, the lower quartile price dropped by 5.6% to $755,000 over three months. This decline in purchase prices is outpacing the recent rises in mortgage rates, saving a typical first-home buyer around $25 to $46 a week on mortgage payments compared to earlier in the year.

Declining Mortgage Commitments and Sales Volumes

Broader housing market data paints a picture of caution. The Reserve Bank of New Zealand (RBNZ) noted that total new mortgage commitments dropped by 7% in July to $7.9 billion, marking the lowest monthly total since February. Total property sales also slid for the seventh consecutive month, falling 6.4% year-on-year to just 6,935 transactions. While first-home buyers are expanding their footprint, investors are pulling back, with their share of new mortgage commitments dropping to 18.9%. High housing inventory—sitting above the five-year average at over 27,000 listings—firmly places pricing power in the hands of buyers.

OCR Predictions and Rising Interest Rates

All eyes are on the RBNZ’s upcoming September 2 Monetary Policy Statement. Economists from Westpac and ASB predict a 25 basis point hike to 2.75% is imminent, a move largely priced in by financial markets. ANZ economists echo this sentiment, anticipating the central bank will hike rates at the next two meetings to reach a neutral OCR of around 3%. However, the long-term outlook remains uncertain. While Westpac anticipates the OCR could eventually push toward 4% by 2027 to curb core inflation, Kiwibank has suggested the RBNZ should pause to assess the cooling economy.

Summary

For borrowers deciding whether to fix or float their mortgage right now, the near-certainty of further OCR hikes suggests that locking in a fixed rate may offer valuable protection against impending increases. With major banks forecasting that the OCR could climb toward 4% by 2027 to combat core inflation, securing a one- or two-year fixed term provides payment stability, whereas floating rates are highly likely to become more expensive in the short term.