Mortgage rates are again sneaking higher
Stimulatory mortgage rates positive for economic recovery but risks remain.
Wednesday, January 14th 2026, 11:36AM
by Sally Lindsay
The ANZ is the first of the major banks this year to increase its rates – upping the floating rate by 10 basis points.
The BNZ in its Markets Outlook says although rates are rising slightly, a huge boon for the household sector will come by way of mortgage holders moving from floating rates to fixed rates or simply locking in recent past gains.
“The sum total cashflow impact on the household sector will be significant and help boost retail spending particularly given that mortgage holders tend to be in the demographic of those with a high marginal propensity to consume,” Stephen Toplis, BNZ research head says.
While the majority of New Zealanders don’t have a mortgage so don’t benefit directly, he says the bank is optimistic that stimulatory interest rates will prove to be net positive for the economy.
The BNZ is heading into this year quietly confident it will prove much better than any of the past three years, but it quick to point out that “better” and “good” are two different things.
It is forecasting the economy to expand 2.5% this year.
“While we expect economic expansion in every quarter of the year, we are still aware that conditions will remain tough for many, Toplis says.
“Both households and businesses will continue to struggle with elevated costs, and the household sector is unlikely to see much joy on the job front until much later in the year.”
Confidence soars
The good news is business confidence soared to its highest level since March 2014 in the December quarter of last year.
The NZIER Quarterly Survey of Business Opinion (QSBO) released this week shows a net 39% of firms surveyed expect better general economic conditions over the coming months on a seasonally adjusted basis.
That's a substantial increase from the net 17% expecting an improved general economic outlook in the September quarter.
The NZIER says there is also a marked improvement in firms’ own trading activity, with only a net 3% of firms reporting a decline in activity in their own business.
Although the gap between business confidence and firms’ own domestic trading activity remains, it says the latest results suggest that New Zealand’s economic recovery is starting to take shape as the effects of lower interest rates flow through to the broader economy.
Key areas to watch
Toplis says there remains a multiplicity of moving parts to monitor this year and there will be shocks that, by definition, have not been taken into consideration.
For the BNZ the three key factors it will be keeping a watchful eye on over the next few months are the impact of weaker dairy prices; political uncertainty at both home and abroad and its effect on investment; and the path of household disposable incomes against a backdrop of lower mortgage interest rates and ongoing weakness in employment growth.
“We think people often underestimate the impact of dairy prices on the wider economy. In our opinion, had it not been for the surge in dairy commodity prices over the past two years, New Zealand would have looked very sick.”
Key to a sustainable economic recovery is that household disposable incomes rise. This is where Toplis sees the biggest forecasts risk.
“Our projections imply that employment will increase by 80,000 people across the year. Our fear is that given the often-long lags between economic growth an employment that any pick-up in jobs growth will be either further delayed or more moderate than we have assumed.”
He says the bank is particularly concerned that there are extremely low flows of labour from the unemployed category into the employed category and that even as the demand for labour increases there may be skill mismatches between those looking for staff and those available for work.
On the political front, the bank won’t pass judgment on the capacity of various parties to run the country well, but what it points out is that it is easier for people to make decisions when there is some surety about the rules of the game.
In contrast, when it is unclear who might win an election and it is clear the policy stance of potential governments could be different then it is difficult for people to forge ahead with investment decisions.
“This can apply equally to housing investment as it can business investment in plant and machinery and technology,” Toplis says.
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