Fuel, jobs, and housing headwinds are converging — and borrowers' cash flow relief is ending
New Zealand households are pulling back hard on discretionary spending, and Mike Jones (pictured), BNZ chief economist, warns the conditions driving that caution are set to deepen through the rest of 2026.
For mortgage advisers, the most pointed message in BNZ's latest Eco-Pulse note is that the cash flow boost many borrowers enjoyed from refixing at lower rates is drawing to a close — just as several other headwinds gather pace.
April card spending data from BNZ and Stats NZ paints a clear picture: fuel price spikes triggered an immediate drop in fuel volumes as households cut consumption wherever possible, while most other spending categories pulled back after a brief burst of front-loading in March.
Hospitality, apparel, domestic travel and tourism, and recreational activities are under the most strain. Durable goods have so far held up better — Jones notes the outperformance of DIY and building supplies in April card data — but he attributes part of that to households getting ahead of anticipated price rises rather than underlying confidence.
BNZ revised its Q2 inflation forecast down to 4% from 4.5%, noting that firms are absorbing a portion of the cost shock rather than passing it fully through to prices — a dynamic that is squeezing business profitability and dampening hiring intentions.
SEEK job ads fell 0.7% in April, the second consecutive monthly decline after eight straight months of growth, reinforcing BNZ's view that the unemployment rate will drift up to 5.6% by year end.
Housing market losing momentum — and the numbers back it up
National house prices slipped 0.4% in April on the REINZ HPI (seasonally adjusted), but Jones argues the more telling signal is the turn down in transaction volumes. Monthly sales peaked in December and have been falling since — well before the Iran conflict added uncertainty to the mix — pointing to higher mortgage rates from late 2025 as the primary cause.
BNZ's flat house price forecast for 2026 now carries downside risk, with May data shaping up to be at least as weak as April.
There are some offsetting forces. Annual net migration reached a 15-month high in March, with net arrivals rising to just above 24,000 — a trend that is beginning to close the gap between population growth and housing supply, particularly in Auckland and Wellington where inventory has been building.
Higher construction costs also risk slowing consents-backed building activity in the second half of the year, which would ease supply pressure further. Global equity markets have pushed 3% above February's all-time high, providing at least a modest lift to KiwiSaver balances that may partially offset housing wealth concerns for some borrowers.
The mortgage refixing tailwind is turning
The most consequential near-term signal for mortgage advisers comes from Jones' analysis of the mortgage rate cycle. Term mortgage rates began rising in late 2025, and BNZ expects the average mortgage yield to start climbing again in the second half of 2026.
"The influence of mortgage positioning on household cash flows is rounding an inflexion point,” Jones said. “The average interest rate paid on mortgage borrowings fell 150bps over the past 18 months, providing an important boost to cashflows. However, that period is now in its closing stages."
The share of mortgage borrowings with remaining terms of one to two years has risen from 14% of the book a year ago to 24% — now in line with the long-run average — reflecting the recent surge in refixing activity and a borrower preference for locking in longer terms. This means the effective mortgage rate will rise more slowly than it otherwise might, limiting — but not eliminating — the repayment shock ahead.
OCR outlook: a hold on Wednesday, but hikes are coming
The RBNZ meets on 27 May — consensus expects a hold, but updated projections are likely to signal an earlier start to hikes and a higher end point than February's Monetary Policy Statement indicated, Jones said.
A Reuters poll of 29 economists conducted 18–22 May found just over half now expect one or two OCR hikes by end-September — a sharp shift from April, when only eight of 30 held that view. The median forecast has the OCR rising to 2.75% by year end and 3.00% by end-Q1 2027.
The major banks are divided on the pace beyond May. ASB and BNZ forecast 100bp of hikes by end-March 2027, ANZ tips 75bp, Westpac 125bp, and Kiwibank just one further move. With inflation already running at 3.1% last quarter — breaching the top of the RBNZ's 1%–3% target band — the direction of travel for mortgage rates is clear.
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