"As we move deeper into the autumn season, the New Zealand mortgage market is experiencing a period of cautious stability. Ahead of the anticipated May OCR announcement from the Reserve Bank, major lenders have largely paused their rate-cutting cycles. While the aggressive drops we saw earlier in April have plateaued, the current environment presents a unique 'wait-and-see' opportunity for borrowers. Banks are currently focusing on defending their existing portfolios with competitive retention offers rather than heavily discounting public rates."
The May OCR Anticipation
All eyes are now fixed on the upcoming May Monetary Policy Statement from the Reserve Bank of New Zealand. The market is currently pricing in a high probability of a further 25 basis point cut to the Official Cash Rate (OCR). However, recent inflation data, while trending downward, showed some stubbornness in the non-tradable sector. This has led some economists to caution that the RBNZ might adopt a more hawkish tone, even if they proceed with the cut. For borrowers, this means that while variable rates might see an immediate adjustment post-announcement, fixed rates might have already priced in the cut, limiting further immediate downside.
Retention Offers vs. Market Rates
One of the most notable trends this week is the aggressive stance banks are taking to retain existing customers. With overall housing transaction volumes lower than typical autumn levels, the 'churn' of the market is reduced. Consequently, banks are highly motivated to keep their current mortgage books intact. We are seeing unadvertised retention offers that significantly undercut public rates. If your fixed term is expiring within the next 60 days, it is crucial not to accept the first renewal offer presented in your banking app. A negotiated retention rate, often facilitated by a broker, can yield substantial savings without the administrative hassle of switching lenders.
The Rise of Split-Fixing Strategies
Given the current yield curve and the uncertainty surrounding the pace of future rate cuts, we are increasingly advising clients to consider split-fixing strategies. By dividing the mortgage into two or three tranches with different maturity dates (e.g., a mix of 1-year and 2-year terms), borrowers can hedge their bets. If rates drop further, a portion of the loan will be ready to capture those lower rates sooner. If the RBNZ pauses cuts due to sticky inflation, the longer-fixed portion provides budget certainty and protection against potential volatility.
Spring Preparations for First-Home Buyers
For those looking to enter the market, the current autumn plateau offers a strategic window. While the traditional spring surge in listings is still months away, the current lower competition levels combined with stabilized rates create a favorable environment for negotiation. First-home buyers who secure pre-approvals now are finding themselves in strong positions to make offers on properties that have been lingering on the market over the summer and early autumn. Sellers of these properties are often more realistic about current market valuations, presenting opportunities for well-prepared buyers.
Looking Ahead
The next few weeks will be critical in setting the tone for the remainder of the year. The May RBNZ announcement will provide much-needed clarity on the trajectory of monetary policy. Until then, we anticipate rates to remain largely stable, with competition playing out behind the scenes in the form of cashbacks and retention offers. We strongly advise borrowers with impending roll-overs to engage with their advisors early to navigate this nuanced environment effectively.