Two-year fixed terms regain favour as borrowers brace for higher rates
New Zealand borrowers have spent the past year lengthening their mortgage terms ahead of expected rate rises, and the share of home lending on floating rates has dropped to a record low, according to BNZ.
In its latest economic update, BNZ said just 9.5% of mortgage borrowing is now on floating terms. Meanwhile, the share of lending with one to two years left on its fixed term has risen to an above average 27%, as the two-year fixed rate has become popular again.
Mortgage book back to normal
The shift has brought the overall structure of the mortgage book back into line with historical norms. The proportion of mortgage debt due to reprice within 12 months, including floating loans, peaked at 83% last year. That was the shortest the book had been in 13 years. It eased to 72% at the start of 2026 and now sits at 64%, close to the long-run average.
Borrowers have been actively reviewing their loans. Equifax data shows home loan enquiries were up 12.2% year to date as people shopped around and refinanced.
BNZ chief economist Mike Jones (pictured) said that “mortgage borrowers are better protected against rising rates than they were,” adding that “we suspect the trend towards longer mortgage terms has a little way to go yet.”
Retail rate rises may slow
The Reserve Bank narrowly decided to hold the official cash rate (OCR) on 28 October, and third-quarter labour market data was weaker than hoped.
Financial markets have since scaled back their expectations. The implied odds of a December hike have fallen to around 50/50, and the expected peak in the OCR has eased to 3.5% from above 4% a week earlier.
BNZ said this could slow increases in fixed mortgage rates, and there could be the odd small cut if the recent fall in market rates continues. However, it still expects fixed rates to be 20 to 40 basis points higher than current levels by March.
Jones said “we don’t see this as a break in the trend.”
BNZ continues to expect the OCR to rise 25 basis points to 3.00% in December and peak at 3.75% in autumn, although it acknowledged the chance of further pauses has increased.
Jobs and housing
Unemployment was 5.7% in the third quarter, matching an 11-year high, as employment and hours worked fell. BNZ believes unemployment has likely peaked.
The bank expects small monthly house price falls to continue until at least the end of the year. It noted that even if mortgage rates are trimmed, the test rates lenders use to assess borrowers are less likely to change.
Approvals are already under pressure. Centrix found approved new mortgages were 16% lower in the September quarter than a year earlier.
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