Borrowers should lock in a strategy as rates turn higher, says ASB economists
ASB economists say the low point for mortgage rates has likely passed, warning borrowers that the question shaping the market has shifted from "is this the low?" to "is the low point for mortgage rates behind us?" following the Reserve Bank's decision to lift the official cash rate to 2.5% at its July meeting.
The fix-or-float dilemma
For advisers, the report reinforces the case for proactive conversations with clients approaching a repricing date or still sitting on floating loans, rather than waiting for a "best time" that may not arrive.
ASB was blunt about the broader outlook, noting that mortgage rates are expected to "settle in a much higher range than the historic lows struck during COVID-19."
How much higher is genuinely contested: bank forecasts for where the OCR ultimately lands range widely, from Kiwibank's more cautious two-hikes call to ASB's own steeper path to around 3.25%, underscoring why locking in a one-size-fits-all fixed term is riskier than usual right now.
What's driving each side of that choice
ASB flags floating rates as the most exposed to further increases, since short-term pricing responds most directly to OCR moves — the bank has already pencilled in another hike for September. ASB isn't alone in repricing — BNZ is lifting its own variable rates to as high as 6.19% from 29 July.
Longer fixed terms face a different kind of pressure, driven less by the RBNZ and more by persistent inflation expectations and global central bank settings, with the Reserve Bank of Australia's early-2026 rate rise cited as one contributing factor.
ASB said "floating is a relatively expensive place to be borrowing," while fixed terms are "now past the lows we expect for this cycle." The bank's current carded rates range from 4.65% for a one-year fixed term to 5.79% floating, with the five-year rate at 5.59%, the highest of the fixed terms on offer.
A modest but real tightening cycle
ASB said the OCR increase — up from a trough of 2.25% reached in November 2025 — marks the start of what it expects to be "a modest tightening cycle," rather than a sharp reversal. Wholesale markets have already been pricing in the move for much of 2026, and mortgage rates have risen in step.
ASB's report noted that fixed rates for one- to five-year terms actually lifted late last year and early this year, even before July's OCR move, as borrowers rushed to fix and markets adjusted to the expected tightening ahead. One-year fixed rates remain roughly 3% below their 2022–23 peaks, though the easy gains of the past year's declines now appear to be behind us.
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