Reserve Bank rate cut may lead to more fixed mortgage reductions

“I would expect to see some more fixed-rate cuts coming through in the next week or two, particularly down the shorter end of the curve, so maybe up to two years or so.”

The RBNZ has moved its cash-rate projections to be more in line with the market, he said.

“And probably sort of cementing in maybe one more rate cut than the market had thought would be occurring as well, so there’s room for those [mortgage] rates to come down further.”

Kiernan said there was room for another couple of interest rate cuts as the OCR was still above neutral.

But he warned that recently the RBNZ had moved either too quickly or too slowly when cutting interest rates, exacerbating the situation.

“What we’ve seen in 2021 and again last year is the Reserve Bank kind of held a line for quite a period of time going, ‘oh it’ll be okay, we don’t need to move’. In reality of course, inflation roared away in ’21, ’22 [be]cause they were too slow to go.

“And then last year the economy was in the depths of recession before they were like ‘actually we think we’ve done enough and now they we can start cutting’.”

It was important to remember that decisions that were taken now took time to flow through to the economy and it would take 12 months for yesterday’s rate cut to start boosting growth, he said.

What should you do with your mortgage?

Loan Market mortgage adviser Bruce Patten said mortgage holders needed to look at a number of factors.

“We need to concentrate on what’s a good rate, how long should I fix for, those are the kind of things that are going to save people money.”

People should not be “sucked into a short-term rate necessarily in the next few months, you might want to think a bit longer because they’ve made it very clear we are coming to the end of this interest rate cycle”, Patten said.

Banks had already priced the latest interest rate cut into their mortgage rates because it was what had been expected, he said.

“What they’re now doing is they’re pricing in this other 50 basis points that Adrian [Orr, RBNZ governor] has said to get to neutral, so to get us down to 3.25[%] – so all they’re doing is literally pricing forward what they expect to see in the next few months.”

Patten said three- to five-year fixed-term loans are affected by wholesale bank rates, rather than the OCR.

“Wholesale rates haven’t been coming down, if anything they may go up if we see inflation, if we see tariffs in the US, so if you want a longer-term rate, you should be thinking about that in the next two to three months absolute maximum – if everybody starts going for those longer-term rates, they will start to creep up.

“If you’re happy short-term, up to two years, then you’ve got time, you can afford to wait and ride that OCR down through till the middle of the year.”

Patten said that the other option could be to split your mortgage by putting half on short-term rates – but advised no longer than six months, with the other half on a two- to four-year fixed term, depending on the person’s situation.

“It’s just about splitting your risk somewhat.”