Fix now, ASB says, as OCR climbs toward 3%

New Zealand's banks are advising borrowers to consider locking in mortgage rates now, even as inflation expectations show early signs of easing — a combination that leaves fixed-rate borrowing looking attractive despite the softer data.

Fixing still makes sense, ASB says

Fixed-term mortgage rates between two and five years now sit above 5%, having risen steadily since the start of the year in anticipation of further Reserve Bank tightening. ASB said that despite the cost, fixing for one of the longer terms "still appears attractive as it would insulate borrowers from a trend higher in the OCR over the next couple of years."

The OCR currently sits at 2.5% following a July hike, with further increases expected at the RBNZ's September and December meetings. Kiwibank said "rates are still likely to head to 3% by the end of the year, but the threat of more hikes is easing" — a view shaped by the RBNZ's Q3 Survey of Expectations, which showed one-year-ahead inflation expectations falling to 2.6%, down sharply from 3.41% the previous quarter.

ASB cautioned against reading too much into the improvement just yet, given how much global volatility — particularly the unresolved US-Iran standoff and ongoing oil price uncertainty — is clouding the picture.

"The signal-to-noise ratio is low currently," the bank said, adding that the Reserve Bank will want confirmation from other inflation surveys before easing its tightening stance.

Serviceability under pressure as wages lag inflation

That squeeze is compounded by labour market conditions, which add a further complication for borrowers already facing higher repayments.

Unemployment sat at 5.6% in the June quarter, with youth unemployment reaching 17.2% for those aged 15 to 24 — among the highest levels in 14 years — against just 3.5% for those aged 35 to 44. Kiwibank noted that wage growth of around 2% is currently running well below the 4.1% inflation rate, squeezing household budgets at a time when mortgage repayments are also rising.

Housing market divergence continues

Westpac reported that house sales fell 4.6% in July, the fifth consecutive monthly decline, leaving sales at their lowest level in two years. Nationally, prices were flat for the month and down 0.4% year-on-year, though Westpac's data showed regional performance varying sharply: prices rose 6% in Southland, 5% in Otago and 4% in Canterbury over the past year, while Auckland fell around 2% and Wellington dropped more than 4%.

ASB's Kim Mundy said the pattern reflects a genuinely two-speed economy, noting that "all regions will feel the impact of higher mortgage interest rates as the OCR increases."

Taken together, the data points to a market where rate relief remains some way off, affordability is tightening on multiple fronts, and outcomes will continue to vary sharply depending on where in the country a borrower sits.

For more insights, read the ASB, Westpac, and Kiwibank reports.

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