What Could NZ Mortgage Rates Be In 2025?

Date Published: 25 March 2024

As we approach the end of the first quarter in 2024, many New Zealanders with mortgages are contemplating their financial futures amidst a dynamic and unpredictable economic landscape. Understandably, one of the crucial considerations is the trajectory of mortgage interest rates into 2025. In this article, we’ll delve into factors influencing these rates and provide guidance for homeowners and investors looking to make informed decisions when it comes to refixing their mortgage rates.

The Role of the Reserve Bank and the OCR

The Reserve Bank of New Zealand (RBNZ) plays a pivotal role in the country’s monetary policy, wielding the Official Cash Rate (OCR) as a tool to manage inflation and influence interest rates. As at 25th March 2024, the current OCR stands at 5.5%, but economic signals suggest it may remain stable or experience a slight rise throughout 2024 before potentially dipping to around 5% in 2025. However, any reduction is conditional on inflation data – interest rates will only fall if inflation moves within acceptable ranges.

Some things to consider:

Political Influence and Pro-Property Policies

The National government’s pro-property stance is anticipated to impact the housing market positively. Supportive policies could stimulate the property sector and potentially influence the RBNZ’s approach to inflation and interest rates. This environment might favour mortgage holders in the coming years.

Global Economic Considerations

Externally, events like the 2024 US elections may have far-reaching economic implications, including on New Zealand’s mortgage rates. Furthermore, the ongoing conflict in Ukraine continues to exert inflationary pressure on food prices, another factor the RBNZ will closely monitor.

What Should I Do If I’m Refixing My Mortgage in 2024?

For those needing to refix their mortgage this year, economic forecasts suggest a potential marginal decline in interest rates by 2025. Consequently, shorter-term fixed rates (1-2 years) could be more advantageous, as they may allow you to benefit from lower rates in the near future.

However, if you have higher cash flow or prefer stability over potential savings, longer-term fixed rates (3-5 years) might be your cup-of-tea, despite their higher initial cost. It’s also important to consider interest rate averaging, which is the idea of not fixating on a single refixing decision but instead looking at the average interest outlay over several years. This perspective can alleviate the stress of trying to ‘time’ the market perfectly.

How To Deal With Forecasting Interest Rates Incorrectly

Forecasting interest rates is inherently uncertain. Disruptive events, like the Covid-19 pandemic, have shown us how quickly economic circumstances can change. Instead of aiming for perfect predictions, focus on building a flexible financial strategy that can withstand varying interest rates. This might involve keeping some of your mortgage floating or setting up offset arrangements that can adapt to rate changes.

In Summary

The general consensus among experts is that mortgage interest rates are likely to remain relatively stable through 2024 with a slight potential for reduction by 2025. This outlook should encourage homeowners and investors to contemplate short to medium-term fixed rates while maintaining a watchful eye on the economic and political landscape.

As New Zealanders consider refixing their mortgage rates, it’s essential to stay informed and agile. By understanding the interconnected nature of global events and local policy, mortgage holders can make prudent choices that align with their financial goals and risk tolerance. And remember, while forecasts can provide a road map, they’re not set in stone—the key is preparedness for any financial weather ahead.

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