Waiting to fix mortgages in 2026 could cost borrowers more, interest rate analyst says

Cuts to the Official Cash Rate are set to keep coming, after a hefty 0.5% drop last week, but a rates analyst is warning it may not make debt much cheaper.

“The reality is the forward market has already priced the easings that most people are expecting [in], so it’s not clear that even if they cut another 50 basis points, that mortgage rates will fall very much,” JB Drax Honore chief Asia Pacific strategist Sean Keane told Markets with Madison.

He warned that borrowers currently sitting on a more costly floating rate, waiting for a cheaper fixed rate to arrive, could miss out on savings.

“Mortgage borrowers, about half of them who’ve taken out floating rate mortgages, have only been benefiting from half of the rate cut.

The average two-year fixed mortgage rate had fallen by about 1.35%, ahead of the most recent Reserve Bank cut, he explained.

Whereas the average floating two-year rate had reduced by 0.6%.

“I do think that people do switch away from floating into fixed to utilise some of that additional stimulus that’s there.”

A long-time watcher of the Reserve Bank, Keane noted last week’s 0.5% reduction was its 200th Official Cash Rate (OCR) decision since it launched the tool in March 1999.

“When the [Reserve] Bank changes the OCR, it tends to set off in a direction and it maintains that direction for a while.”

That supported the bank’s current forecasts to keep lowering rates to about 3% by the end of this calendar year.

“It’s where the financial market already was, the assumption is they need to get down towards 3%.”

Its rate projections were a clear example of the bank meeting the market - Keane said we should expect to see more of that as it relied less on poor official data and more on real-time surveys and indicators.

“The data in New Zealand is of such questionable quality now that the Reserve Bank are looking at lots of other indicators.

“What the Reserve Bank is doing now is adopting some market practice.”

Watch Sean Keane discuss what the RBNZ may do next, and the impact it may (or may not) have on our economy.

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Disclaimer: The information provided in this programme is of a general nature and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.

Madison Reidy is the host and executive producer of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.