Economists warn higher repayments could curb spending as recovery stays fragile
About 64% of New Zealand mortgages are due to reprice within the next 12 months as the Reserve Bank (RBNZ) lifts interest rates. That’s according to the New Zealand Institute of Economic Research (NZIER), whose latest Insight, published in October, cites RBNZ lending data.
The RBNZ began tightening the official cash rate (OCR) in July and increased it to 2.75% in its September Monetary Policy Statement. As a result, NZIER economist Ting Huang (pictured) wrote, many “households will face higher mortgage repayments as their mortgages come up for repricing”. The paper warns that this extra pressure “could crowd out household discretionary spending”, even if fuel prices ease and wage growth picks up.
Banks passed the September rise in full through to floating rates, and further increases are expected: ASB tips the OCR reaching 3.25% by December, while Westpac expects a pause in October before a rise to 3% in December.
Most borrowers are on fixed terms: New Zealand Banking Association (NZBA) figures show 62.2% of loans were on fixed rates and a further 21.5% split between fixed and variable in the six months to June.
A recovery households can’t yet feel
The broader economy is still growing. Gross domestic product (GDP) climbed 0.2% in the June quarter, following a 0.9% gain in the March quarter. That was the fourth consecutive quarterly increase, which NZIER said showed the fuel shock earlier in 2026 “slowed rather than stalled the economic recovery”.
Household finances tell a weaker story. Real gross national disposable income per capita fell 0.6% in the June quarter, and private consumption was flat. Annual consumer price inflation reached 4.1%, driven largely by fuel, although non-tradable inflation eased to 3.4%. Unemployment edged up to 5.6%.
Construction and confidence show promise
There are some brighter signs for residential building. Construction was the biggest contributor to June quarter growth, up 2.7%, and spending on residential building work grew 4.4%. The number of new dwellings consented increased 21% in the year to August 2026.
In NZIER’s Quarterly Survey of Business Opinion (QSBO), a net 40% of firms expected general economic conditions to improve. Even so, architects expect the pipeline of new housing work to stay flat over the next two years.
Limited room for the next government
The Treasury forecasts a return to surplus in 2028/29, but NZIER noted those forecasts were finalised before the latest rise in oil prices. With inflation still above target, it cautioned that measures which substantially increase demand could prompt the RBNZ to keep policy tighter for longer.
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