The two-year fix is now the most popular term as repricing risk rises
A significant turning point has arrived for New Zealand mortgage borrowers, with new analysis showing the strategy that rewarded homeowners over the past two years — staying short and rolling onto lower rates — is now working against them as wholesale funding costs push retail mortgage rates higher regardless of where the OCR sits.
Cotality NZ chief property economist Kelvin Davidson (pictured) said the shift marked a meaningful change in the financing environment.
"Over the past two years, many borrowers were rewarded for staying on short-term fixed rates because they could repeatedly reprice onto lower rates," Davidson said. "That strategy has become much less effective as market mortgage rates rise ahead of any medium-term OCR increases."
43% of existing debt due to reprice within six months
Reserve Bank data shows approximately 43% of existing mortgage debt is either floating or due to refix within the next six months — a large cohort now entering a more expensive environment than many anticipated. Borrowers who locked in a six-month rate around 4.8% in October are now looking at a two-year rate approximately 30 basis points higher at 5.1% if they choose that term. Davidson said many had already missed the lowest point in the cycle.
Since early March, the two-year swap rate has risen around 70 basis points while advertised home loan rates have moved by only about 20 basis points — a gap that Koura Wealth founder Rupert Carlyon said means banks are absorbing lower margins, and one that points to "pretty hefty rate rises" ahead regardless of OCR movements.
Borrower behaviour is already shifting
The repricing pressure is already reshaping how borrowers are approaching their decisions. Floating and short-term fixed lending has lost ground over the past six months, while the two-year fixed rate has become the single most popular term, accounting for 29% of new lending in March — part of a broader shift in which more than 50% of new loans have now been fixed for longer than 12 months in total, up sharply from around 20% in the September to November period last year and the highest two-year uptake since late 2022, according to Kiwibank chief economist Jarrod Kerr.
"Borrowers are increasingly prioritising repayment certainty again as refinancing conditions become more uncertain," Davidson said. "Many households that previously focused on staying flexible are now weighing up whether rates could move higher over the next one to two years."
Squirrel's David Cunningham puts the near-term ceiling at around 5.3–5.4%, with most banks already at 5.2–5.3% against a two-year swap of 3.5%. Kiwibank's Jarrod Kerr was blunter: "I don't see mortgage rates falling. The obvious path is higher, not lower. That's the risk that households need to have in their minds."
What it means for brokers and their clients
The implications extend beyond individual borrowing decisions. Davidson warned the cumulative effect of near-term repricing on household spending could complicate the Reserve Bank's task.
"Higher mortgage costs reduce disposable income and place additional pressure on household spending at a time when economic conditions are already fragile," he said. "That creates a more complicated environment for the Reserve Bank as it weighs inflation pressures against weaker growth and softer consumer demand."
The RBNZ held the OCR at 2.25% today on a 3-3 split vote — but all six committee members agreed hikes are coming, with July already flagged as a likely move point.
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