OCR cut a relief for buyers and sellers
Wednesday, 19 February 2025
If the Official Cash Rate (OCR) continues to fall as signalled at on Wednesday, first home buyers and home owners alike will have more reason to celebrate.
On Wednesday the Reserve Bank cut the OCR by 50 basis points to 3.75%, the first time it’s been below 4% since late 2022. But it’s no end to the cost of living crisis, bank governor Adrian Orr said, with prices remaining stubbornly high.
Labour finance spokesperson Barbara Edmonds said the cut was still a symptom of rising unemployment and a recession in the economy ‒ good news for borrowers aside.
“It’s time for leadership that invests in jobs, skills, and the future, not cuts and excuses,” Edmonds said on Wednesday.
On Wednesday, Orr said more cuts were coming, with the OCR potentially reaching as low as 3% by the end of 2025.
ACT Leader David Seymour encouraged more cuts, saying more relief will still be needed this year for people to “keep more of their own money, to spend and invest on their own priorities”.
In response to the OCR cut, several banks immediately moved to reduce their mortgage rates.
Christchurch mortgage adviser Ro Graveston of The Mortgage Lab said the reduction opened up borrowing capacity significantly and should see more people able to afford houses that suited their needs and wants, rather than being priced out of their ideal home thanks to interest rates.
“Long may the decreases last,” she said.
New Zealanders have got used to living in tough times over the past few years and she hoped the rates reductions meant people would not be compromising their lifestyle just to afford their own home.
Graveston said sellers were seeing the impact too, with auction rooms getting busier and the sales reaching the prices vendors actually wanted.
“Going forward, there should be less people selling because they have to, but rather because they want to.
Contact a mortgage adviser as soon as possible to plan for home ownership, Graveston said: “If you have the confidence to pick up the phone, you are already 10 steps ahead,” she said.
Auckland-based mortgage adviser Bryce Helms said it may take some time, but he expected more banks to also reduce their fixed-term rates in the coming weeks as well.
His top tip? Split your mortgage into “mini-mortgages” and set different rates for each of them, including one at a floating rate and others at short and longer-term rates.
Doing that means you can take advantage of cuts like Wednesday’s, without putting your entire mortgage at risk of economic shocks that send rates in the other direction.
And if you’ve managed to get used to the high mortgage rates and can refix your mortgage to take advantage of the lower cash rate, try paying more anyway, Helms said.
“It can knock years and years off your loan term and save hundreds of thousands in interest,” he said.
Alongside the OCR cut announcement, the Reserve Bank released its latest Monetary Policy Statement which included projections for a recovery in gross domestic product this year, for the unemployment rate to peak soon and then fall, and for house prices to continue slowly rising, with inflation projected to remain around 2%.
Kelvin Davidson, CoreLogic NZ chief property economist, said he will be watching whether borrowers stop taking floating and short-term fixed rates this year, opting instead for longer term fixed rates.
“For the property market and mortgage borrowers, then, the key message is that interest rates seemingly have further to fall yet, although the drops to come could be a bit slower or smaller than those seen to date – especially since banks were already cutting in advance of today’s decision anyway,” Davidson said.