What an OCR cut will mean for mortgages

Tuesday, 8 October 2024

With one week until the next OCR update, economists are predicting a bigger rates cut than August. ANZ’s latest business survey shows business confidence rebounding as interest rates drop, offering some relief.

Economists are calling for the Official Cash Rate to drop this week - so what will that mean for your mortgage?

The Reserve Bank of NZ (RBNZ) will be announcing whether the OCR has been cut, or remains the same, on Wednesday afternoon.

Calls for a 50bp reduction have grown, which would lower it to 4.75%, which was what it was in March last year.

This would ultimately affect your mortgage as the OCR sets the interest rates on the deposits and loans that registered banks have with RBNZ, which overall affects the bank’s earnings and costs, and influences how they set their deposit and loan interest rates.

Glen McLeod, director of Edge Mortgages, said an if the OCR was cut to 4.75% it would be the next step at turning the economy around.

“With home owners still struggling with high interest rates it will be a welcome reduction. Whether it is a .25% or .50% reduction is up for debate.”

Craig Johnson, of New Zealand Home Loans, said the possibility of the OCR dropping this week was promising news for homeowners.

“We expect the banks to follow suit. However, it’s important to note that many banks have likely factored the OCR announcement into their forecasts, and we’ve already seen a number of interest rate changes.

“The current interest rate environment influences how borrowers lock in their fixed rates. We’ve seen more clients refixing for shorter terms – 6-12 months – with the expectation of accessing lower rates when their term ends.

That said, it’s important to consider the long-term financial impacts and the borrower's unique circumstances.“

Another OCR announcement was expected in November - so when it came to locking your mortgage for the short or long term McLeod said it was likely there be a further OCR reduction.

“If we see that inflation is at or around 2% then I would think .50% would be likely. Therefore 6 month rate is appealing if you believe rates will continue to fall throughout 2025. The 1 year rate is also quite appealing as it is lower than the 6 month rate by a good margin.”

What would lower interest rates mean for you? Have your say in the comments below.