Reserve Bank of New Zealand Cuts OCR to 3.75%

What It Means for Mortgage Rates and Borrowers

The Reserve Bank of New Zealand (RBNZ) has reduced the Official Cash Rate (OCR) by 50 basis points to 3.75%, signalling an earlier-than-expected shift towards lower interest rates. This decision is set to impact home loans, investment strategies, and the New Zealand dollar, which weakened to 56.80 US cents following the announcement.

The Monetary Policy Committee (MPC) has hinted at further rate cuts ahead, stating: "If economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025."

Positive News for the Property Market

This latest cut is set to boost confidence in the housing sector, with Property Brokers' Managing Director, Guy Mordaunt, already noticing an uptick in activity.

"The OCR cut is welcome news for the property market," said Mordaunt. "We’re already seeing increased activity across the regions, with more buyers entering the market and sellers recognising the opportunity to list. Lower interest rates are giving buyers the confidence to act, and it’s shaping up to be another busy year."

Faster OCR Reductions Than Previously Forecast

The RBNZ now expects the OCR to drop to 3.1% by December 2025, a sharp revision from its November 2024 forecast, which had anticipated this level by March 2027. This accelerated timeline suggests the central bank is prioritising economic growth and financial stability.

How the OCR Affects Mortgage Rates

The OCR is a key driver of mortgage rates in New Zealand. It represents the interest rate that the RBNZ charges commercial banks for short-term borrowing. Since banks use this rate as a benchmark, changes to the OCR directly influence home loan interest rates.

The RBNZ reviews the OCR seven times a year, meaning mortgage rates could fluctuate further in the months ahead.

How Banks Adjust Mortgage Rates

Banks in New Zealand set their mortgage rates based on a combination of factors, including:

• OCR movements: Banks may pass OCR cuts onto variable mortgage rates.
• Market competition: Banks may offer competitive short-term fixed rates to attract borrowers.
• Funding costs: The cost of raising money from domestic and international sources impacts how banks adjust home loan rates.

Recent Mortgage Rate Reductions

Following the RBNZ’s decision, several banks have already moved to lower their home loan rates:

TSB

• TSB cut its one-year fixed home loan rate to 5.59%.

ASB

• ASB reduced its six-month fixed rate to 5.89%.
• Its one-year fixed rate dropped to 5.49%.
• The 18-month fixed rate fell to 5.19%.

Westpac

• Westpac lowered its 18-month rate to 5.34%.
• The two-year rate is now 5.29%.
• Its three-year rate has been reduced to 4.99%.

Can You Negotiate a Better Mortgage Rate?

Yes - homeowners and property investors can negotiate better mortgage rates and lower fees with banks and mortgage lenders.

Some key negotiation strategies include:

• Asking for discounted interest rates based on customer loyalty or competitive offers.
• Refinancing to a shorter fixed-term loan if better rates are available.
• Seeking assistance from a mortgage broker to compare lender options.

What’s Next for Borrowers and Investors?

With the RBNZ forecasting further OCR cuts, mortgage holders and property investors should stay informed about rate changes. Lower interest rates could present opportunities for home loan refinancing, property investment, and business borrowing.

As the property market gains momentum, now is the time to review mortgage options and compare home loan rates to take advantage of the changing financial landscape.

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