Westpac has become the first of New Zealand’s major banks to lower its fixed-term home loan rates, responding to the Reserve Bank’s decision earlier this week to hold the Official Cash Rate (OCR) at 2.25 percent. The cuts, announced Friday, apply to three-, four- and five-year fixed mortgages.
The bank’s three-year special fixed rate will fall to 4.99 percent, the only advertised rate below 5 percent among the country’s five largest banks as of Friday afternoon, according to Westpac. Four- and five-year fixed special rates will decrease by 0.20 percentage points, to 5.19 percent and 5.29 percent respectively. The new rates take effect Monday, February 23.
The move follows Wednesday’s OCR decision by Reserve Bank Governor Anna Breman to maintain the current rate, a move widely anticipated by the market. While the Reserve Bank held steady this week, it signaled a potential shift in its outlook, indicating it now expects to commence raising interest rates sooner than previously forecast – potentially as early as December 2026. Though, the bank also indicated that any increases would be gradual.
The Reserve Bank’s revised projections led to a decline in wholesale markets, suggesting investors had previously priced in a more aggressive tightening cycle. Commentators suggest Westpac’s rate cuts could provide some relief to borrowers and potentially halt the recent trend of increasing home loan rates.
ASB economists are advising borrowers to carefully consider their options in the current environment. “With so much going on, it is an critical time to have a mortgage plan,” they said. They noted that shorter-term rates have experienced the most significant declines from their peak levels, with floating, six-month and one-year terms all down to 2.9 percent.
However, ASB senior economist Chris Tennent-Brown cautioned that rates are likely to rise over the next few years. “The timing of when they’ll go up is the uncertain bit and that just depends on if inflation cools quick enough for the Reserve Bank to be comfortable on the sidelines for this year or they need to act earlier or swifter than their forecasts imply.”
Tennent-Brown suggested that a strategy of fixing mortgages for one-year terms has historically proven to be the most cost-effective approach over time, but acknowledged this could change depending on future economic conditions. He highlighted the value of splitting mortgages across different terms – one, two, and three years – to balance certainty with flexibility.
“There’s still a lot of value in strategies like splitting mortgages over one, two and three years,” Tennent-Brown said. “It still comes back to that story of balancing up people’s needs for certainty because you can get a lot of certainty now for historically low prices.” He anticipates one-year rates could rise to the early 5 percent range, with two-year rates increasing slightly higher.
“Clearly the low point in rates is at best here and likely behind us. So you just need to operate out, what are your needs for flexibility and what are the considerable risks for you?” Tennent-Brown added. “If I had a lot of debt and I couldn’t deal with rates getting too much higher, there’s a lot of value in those longer-term rates.”
