Why your mortgage rate might not drop any further

Landlords watching the Reserve Bank cut the OCR to 2.25% in November will have felt some relief. But behind the scenes, wholesale interest rate markets were spoiling the party, and now the big banks are starting to lift longer-term fixed rates even as the OCR sits near historic lows. 

The final cut 

The Reserve Bank delivered its final cut in November, dropping the Official Cash Rate to 2.25% after a rapid descent from the 5.5% peak. Inflation has settled at 3% — right at the top of the RBNZ’s 1–3% target band — and the central bank expects it to drift back toward 2% by mid-2026 as the economy works through spare capacity. 

You should think again if you believe that will lead to more rate cuts. Wholesale swap rates — a key driver of how much banks charge for fixed mortgages — started climbing immediately after that November announcement, putting upward pressure on banks’ lending costs. 

Markets are pricing in where they think swap rates will be in 12–24 months’ time. Right now, traders are betting the RBNZ will start hiking rates back to 2.5% by late 2026, with further increases through 2027. That future expectation is what’s pushing swap rates higher now, which flows directly into the mortgage rates banks offer you. 

What the major banks are forecasting 

Every major bank economist has essentially called the bottom of the interest rate cycle. The consensus is stark: mortgage rates have hit their floor, and the only question is how quickly they start climbing. 

• ANZexpects the OCR to stay at 2.25% throughout 2026 but forecasts all fixed mortgage rates will rise to around 5% over the next 12 months.
• ASB says mortgage rates are “as low as they will go.” Their analysis shows swap rates climbed immediately after the November OCR announcement. They say there’s merit in fixing for longer terms now, potentially spreading risk across one-, two-, and three-year terms.
• BNZ‘s economists see the mortgage rate downtrend ending soon, with increases starting from the second half of 2026.
• Kiwibank also agrees we’ve hit the cycle’s low point. Their economists note “the hurdle for an additional cut is high” and warn that wholesale rates have already lifted as markets shifted from expecting further cuts to pricing in rate rises from mid-2026.
• Westpac takes the longest view, expecting the OCR to stay at 2.25% until mid-2027, when the RBNZ will start hiking toward 3% by the end of 2028. 

Independent economist Tony Alexander is fixing long 

Tony Alexander has been watching wholesale markets closely and urges caution about interest rate optimism. His analysis: we’ve likely reached the bottom of the cycle, but that doesn’t mean rates stay flat. The economy has considerable room to grow through 2026–2027 as multiple factors kick in: higher farm incomes, lagged effects of lower rates, increased tourism, more foreign students, infrastructure spending, and a housing construction recovery. 

The Reserve Bank’s own forecasts show GDP growth accelerating from -0.5% in the year to September 2025 to 2.8% by March 2027, then 3.1% the following year. Alexander is concerned that growth creates inflation pressure, and the RBNZ has a track record of easing too late and too much, then tightening too late and too much. 

His personal strategy if borrowing today? Fix for 3–5 years, probably the latter. He specifically noted in late 2025 that he’d have locked in five years at 4.99%, and even though those rates have now risen to around 5.25%, he says he’d still take it, given the one-year rate sits around 4.5%. The upfront cost of locking long now might be worth avoiding much higher rates later. 

Wholesale–retail squeeze 

Banks face a squeeze: wholesale swap rates are rising while they’re still competing aggressively for mortgage market share. Westpac’s economists noted the margin between retail rates and wholesale rates is “as narrow as we’ve seen since the start of 2024.” Banks have almost no buffer to absorb increasing costs without passing them through to borrowers. 

Current headline arithmetic shows banks offering mortgages around 4.49% on one-year fixed terms while paying term depositors roughly 3.90–4.00%. That’s an unusually thin spread. With swap rates climbing, banks can’t sustain compressed margins indefinitely. Something has to give — and it won’t be the swap rates. 

This explains why ASB and BNZ both lifted longer-term rates in December, even while dropping their six-month terms. The longer you’re asking a bank to lock in a rate, the more exposed they are to wholesale market movements over that period. Those movements are already trending up. 

The fixing strategy that makes sense 

Conventional wisdom says fix short when rates are falling; fix long when they’re rising. We’re at the inflection point. Rates have fallen sharply from the 7%+ peaks of 2023–2024, but the bottom is in — and the next move is up. 

Consider longer-term fixing right now. The gap between one-year rates (4.49%) and five-year rates (5.29% to 5.89%) is roughly 80 basis points — meaningful, but not massive given what’s coming. If mortgage rates climb back toward 5% across all terms by late 2026, locking in five years at 5.29% today starts looking smart. 

ASB suggests spreading risk across different terms: fix portions at one, two, and three years to balance cost against protection. That way you’re not fully exposed if rates spike, but you’re also not entirely locked out if the unexpected happens and rates somehow drift lower. 

The 2026 election wildcard 

New Zealand faces a general election in November. Labour has floated a capital gains tax proposal. Kiwibank’s Jarrod Kerr noted considerable nervousness around the election, particularly regarding potential tax changes and what they’d mean for property investors. 

If investor sentiment shifts dramatically based on election outcomes, that could influence housing demand, which feeds back into inflation pressures and, ultimately, where the RBNZ takes the OCR. Markets hate uncertainty, and swap rates could move sharply in either direction depending on polling and policy announcements through the year. 

Bottom line for landlords 

Your mortgage rates have probably bottomed out. The OCR is done falling. Wholesale swap markets are already pricing in rate rises through 2026–2027. The major banks are lifting longer-term fixed rates while the OCR still sits at 2.25%. 

If you’re coming off a fixed term or restructuring debt, seriously consider locking in for three to five years now. The difference between today’s rates and where they’ll likely be in 12–18 months could be significant. Don’t assume the low-rate environment of 2020–2021 is coming back — the new normal appears to be the mid-5s, and we’re fortunate current rates still sit below that. 

Questions about restructuring your property finance before rates climb further?
The team at Goodwins can help you work through the options. Call 0800 GOODWINS.