New Zealand Property & Mortgage Update: OCR Rises to 2.75% While Housing Market Flatlines

Executive Summary

The Reserve Bank of New Zealand’s recent move to push the Official Cash Rate to 2.75% has prompted major banks to warn that the bottom of the mortgage pricing cycle has passed. Meanwhile, the national housing market remains subdued, driving property values down further and allowing first home buyers to claim a record share of the market.

Key Takeaways

• The OCR sits at 2.75% following its latest hike, applied to combat lingering 4.1% inflation.
• ASB’s latest Home Loan Rate Report indicates mortgage rates have passed their lows, urging borrowers to lock in strategies rather than wait for further drops.
• National property values declined by 1.3% over the August quarter, pushing prices 18.2% below their 2022 peak.
• First home buyers now account for 29% of the national housing market, overtaking investors and existing homeowners.

Market Breakdown

OCR and Mortgage Rate Pressures

With the RBNZ targeting persistent 4.1% inflation, the OCR is currently set at 2.75%. Economists note that while the central bank is moving closer to a neutral policy stance, financial conditions remain tight. According to ASB’s September Home Loan Rate Report, the mortgage market has moved past the bottom of its current cycle. One-year fixed rates currently hover around 4.99%, while variable rates have climbed to 6.29% to align with recent OCR increases. Banks are actively cautioning borrowers against trying to time the absolute bottom of the market, as long-term wholesale rates and global economic pressures point toward higher borrowing costs heading into 2027.

Property Values and Sales Activity

The broader property market continues to drift downward. Cotality data for the August quarter shows a 1.3% decline in national property values and a 1.0% annual drop. Auckland and Wellington led the depreciation, with quarterly falls of 1.7% and 2.2% respectively. Nationally, properties are taking an average of 50 days to sell. Analysts at ASB project that New Zealand house prices will not return to their 2021 peaks until late 2029, attributing the prolonged recovery to higher long-term interest rates, increased housing supply, and normalized population growth.

The Rise of First Home Buyers

The combination of declining prices and flat capital gains has structurally shifted market demographics. First home buyers are currently the most active group in the country, accounting for 29% of all purchases nationally. In major centers, this demographic representation is even stronger, hitting 31% in Auckland and 37% in Wellington. Conversely, investors are retreating from the market. With median prices still relatively high and interest rates remaining elevated, residential properties are increasingly difficult to hold for positive cash flow, discouraging investor participation.

Summary

With major banks forecasting that fixed mortgage rates have already moved off their cycle lows, the data suggests that floating your mortgage in hopes of near-term rate cuts is a high-risk strategy. Borrowers currently on floating rates are directly exposed to the latest OCR hikes at 6.29%, making a transition to a fixed term around 4.99% a practical move to cap costs and secure payment certainty over the next year.