Big fall in mortgages rolling over onto lower rates still to come

The fall in borrowing costs is only half-way through for households, even though the RBNZ appears to have made its last cut to the OCR.

Tuesday, December 2nd 2025, 10:00AM

by Sally Lindsay

Large numbers of borrowers are now repricing on to lower interest rates and there are more to come. Some could see large falls in their repayments.

Westpac senior economist Satish Ranchhod says about 40% of mortgages have come up for refixing over the past six months. Before the pandemic, the average was 20-25%.

Over the next six months, a further 32% of mortgages will roll over.

There are also about13% of borrowers on floating rates, and some are likely to shift on to lower cost fixed rates, he says.

Spending on debt servicing is expected to continue dropping through the first half of next year.

Ranchhod says accounting for when borrowers fixed their mortgages – rather than the rates currently on offer – the average ‘effective’ mortgage rate that borrowers are paying has fallen from 6.39% in October last year to 5.36% in September this year, down 103 basis points (bps).

“We expect that rate will fall to 4.5% mid next year as increasing numbers of mortgages come up for refixing.”

For households with mortgages, Westpac estimates that spending on interest costs as a share of disposable incomes has fallen from a peak of 22.1% late last year to 18.4% now. It’s predicted to fall to about 15% next year, versus a pre-pandemic average of about 16.6%.

Slower than across the ditch

Ranchhod says as the bank has often highlighted, interest rate reductions by the RBNZ take a long time to pass through to households’ back pockets.

About 90% of New Zealand mortgage lending is fixed for a period, usually for terms of one to two years.

In the existing cycle, the pass through of rate cuts was further delayed as earlier this year many borrowers opted to go on to relatively more expensive floating or short-term fixed rates in anticipation of ongoing mortgage rate cuts.

“This was a key reason why, despite large reductions in the OCR, economic conditions remained soft in the earlier part of the year.”

Mortgage rate fixing is much more prevalent in New Zealand than in Australia, where only around 10-15% of lending is on fixed rates.

As a result, interest rate changes take longer to flow through the New Zealand economy than in Australia.

When borrowers go to refix their mortgages, many are rolling onto much lower interest rates, Ranchhod says.

Over the past year the one-year mortgage rate has fallen by nearly 150bps. The two-year rate is about 260bps lower than in 2023.

More OCR cuts could be expected

Meanwhile ASB says it will be interesting to see if respondents to its quarterly Housing Confidence Survey continue to expect further declines in home loan rates.

In its latest October survey 54% of respondents expected to see another drop in interest rates and the RBNZ delivered a 25bps cut last week.

ASB senior economist Jane Turner says the expectation of lower interest rates has had an interesting impact on the transmission of monetary policy over the past year.

“Some borrowers have been reluctant to lock in fixed-term mortgage rates on the anticipation that home loan rates would be lower by now.

“Instead, they stayed on floating or fixed for relatively short, but more expensive, term mortgage rates. And as the economy underperformed expectations this year, this strategy paid off given the declines in mortgage rates over recent months.”

Turner says this behaviour potentially delayed the full impact of the RBNZ’s monetary stimulus.

“Only once borrowers are convinced they are at the low point of the current cycle, will they lock in fixed term mortgage rates and the full effect of the RBNZ’s monetary stimulus will flow through to household budgets.”

A net 28% of survey respondents now feel it is a good time to buy property - the highest level since mid-2010 when the housing market was still in its post-global financial crisis (GFC) funk.

For potential buyers, the housing market may currently be in a pre-economic recovery sweet spot as ASB believes housing conditions are likely to become more competitive over the coming year.

Mortgage rates are at, or close to, cyclical lows, house prices are stable following declines since the 2021 peak, job concerns are dissipating, wages are growing and the expectation is for prices to gently lift next year, but not at the rapid pace of the past.

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