What really moves your mortgage rate (and it’s not always the Reserve Bank)

Monday, 16 February 2026

Katie Wesney is a qualified financial adviser and head strategic coach at Enable Me.

OPINION: I was speaking with a close friend this week and found myself getting increasingly dismayed when they brought up the topic of the OCR (official cash rate) and how it might impact their mortgage rate.

The dismay wasn’t at them specifically, but instead at the ongoing misconception around “the gap” with so many Kiwi homeowners.

The gap between what most New Zealanders think drives their mortgage rate and what actually does, between the Reserve Bank’s upcoming Wednesday announcement and what eventually shows up on your mortgage statement.

It wasn’t a long conversation, but I’m writing it here because they found it fascinating, and because I believe it’s important that homeowners with a mortgage understand their potential to save thousands in the long term.

Taking the reactionary out of the chain reaction

When the Reserve Bank changes the OCR, it adjusts the benchmark rate that influences what banks pay for funding — and eventually what you pay on your mortgage. Eventually being the key word.

What happens between those two points is a chain: OCR moves → wholesale funding costs shift → banks adjust retail rates → customers borrow more or less → spending changes → inflation responds.

In theory, clean and direct. In practice, each link has its own timing, friction, and commercial considerations. We can’t control the chain reaction of these points, but we can control how we react to them.

For example, late last year several major banks ran aggressive cashback campaigns competing for new mortgage customers. Some cashbacks ran into the tens of thousands of dollars. When one bank offered that level of incentive, others felt pressure to match. What followed was a frenzy of switching — customers chasing cashback, banks paying out millions, with little net growth in total lending.

Banks don’t publish exactly how each factor feeds into pricing decisions, but campaigns like this form part of the commercial equation — alongside funding costs, risk settings, and capital requirements — when pricing committees review rates.

The OCR is one input. It’s not the only one. Industry competitive dynamics matter too.

Why banks move together

New Zealand’s four major banks control over 80% of the retail banking market. In concentrated markets, competitors watch each other closely — and prices naturally cluster.

You see it elsewhere too: supermarkets, petrol, power, building supplies. When markets are concentrated, competition is less about dramatic undercutting and more about careful positioning.

Each bank has a pricing committee — a group focused on staying competitive and profitable. Their job is to regularly assess the full picture: competitor rates, funding costs and loan demand. When one bank moves, others often follow — not through coordination, but because they’re responding to many of the same signals.

For customers, this means Wednesday’s OCR announcement is just one of several factors shaping what you pay, not the only indicator.

Solving the savings rate puzzle

When the OCR rose sharply in 2022–23, mortgage rates climbed quickly. When it started falling, mortgage rate reductions came more gradually. Savings rates lagged in both directions.

This isn’t random. It reflects different competitive pressures on different products.

Mortgage customers actively shop around. They compare rates, they switch banks, they negotiate. That creates strong competitive pressure on lending rates.

Savings customers tend to be stickier. Many people opened their savings account years ago and haven’t reviewed it since. That behavioural difference means less competitive pressure on deposit rates — so banks often move them more slowly.

This tends to produce a consistent pattern: banks pass rate increases through to borrowers faster than to savers, and rate decreases through to savers faster than to borrowers.

Once you see it, you can’t unsee it. More importantly, you can learn how to respond to it, not simply react to it.

What you can do

1. Don’t be a passive mortgage customer

When banks compete aggressively for new customers through cashback offers or special rates, those incentives are funded somewhere — typically through overall margin management across the loan book.

When strong offers are available, consider switching. The paperwork is usually less painful than people expect, and the savings can be meaningful. Financial loyalty is admirable in many contexts. Your mortgage isn’t one of them.

2. Review your fix versus float decision this week

At the time of writing, typical floating rates are around 5.7–5.9% while one-year fixed rates are around the mid-4% range. A gap of more than one percentage point is material — especially on a large mortgage.

Floating rates offer flexibility. But unless you are actively using that flexibility — making extra repayments or planning to sell soon — you may be paying a premium for an option you’re not using.

Rate expectations and Reserve Bank signals make this worth reviewing now.

3. Shop actively for savings rates

If competitive pressure is lower on deposit products, compensate by being more active yourself. Check what your savings account is actually earning. Compare it with current market offers. Moving savings can take an hour. The extra return over a year can be significant.

The bottom line

Wednesday’s OCR announcement matters. It influences wholesale rates, shapes bank pricing decisions, and signals the likely direction of movement.

But it doesn’t automatically determine what you pay.

I’m telling you because customers who understand how the system works tend to make better decisions than those who don’t, and understanding it is the only way to turn a reactionary approach into confident, action-led decisions.

Your bank understands this.

Now you do too.

Disclaimer:

The information in this article is of a general nature and is not intended to be personalised financial advice. It does not take into account your individual circumstances or financial goals. While all information is believed to be accurate at the time of publication, Enable Me, AdviceFirst Limited, Katie Wesney, and any related parties accept no responsibility or liability for any loss incurred as a result of reliance on this information, except as required by law.