NZ interest rate predictions from experts & economists (2025)

ANZ takes a slightly less optimistic approach to forecasting interest rates than most other banks. They see one year fixed rates bottoming out at 5.5% in June 2025 and remaining at that level until late 2026, with two year rates behaving similarly. The bank’s economists expect three and five year rates to reach 5.6% in late 2024 and start increasing in mid-2025, reaching 5.8% and 5.9%, respectively, by June 2026. They advised caution when choosing rates in their October Property Focus:

“… we are inching closer to the point where mortgage rates are likely to find a base. Markets are already pricing in OCR cuts all the way down to 3%, which is below our forecast, so timing will be key for anyone who wants to pick the proverbial bottom. As always, fixing for a mix of terms is one sure way to spread risk.”

In their 7th October Weekly Commentary paper, Westpac forecasted a 0.5% cut to the OCR in November, and steady 0.25% cuts in the first half of next year until the rate reaches 3.75%. If current margins between the OCR and interest rates are maintained, that would mean one year fixed rates would sit around 5%.

They also explained that OCR cuts next year have already been factored into rates of two years plus, with short term rates of 18, 12 and 6 months expected to fall more in the coming year. 

ASB’s 17 October home loan rate report included a forecast that their one year rate would reach 5.7% by October 2025. They forecast that two and three years rates will get lower, hitting around 5.3% to 5.4% during the same period. They expect that long term interest rates won’t go much lower than that level and that all rates will settle in a higher range than recent lows struck during COVID-19. 

In their 22 October Eco-Pulse paper, BNZ provided a forecast for fixed interest rates in mid 2025. They expect one year rates to fall significantly from 5.99% to just below 5%, with smaller decreases expected for long term rates:

• Two year rate to decrease from 5.69% to around 5.19%. 

• Three year rates to decrease from 5.69% to around 5.29%.

• Four year rates to decrease from 5.59% to around 5.39%

• Five year rates to decrease from 5.59% to around 5.49%

These rough estimates tell us that long term interest rates may have already nearly bottomed out, with larger decreases expected for short term rates in the near future. 

Jarrod Kerr, Kiwibank’s Chief Economist is expecting interest rates to decrease further than most other experts. He reckons the Reserve Bank will cut the OCR by 0.5% in November 2024, and possibly in February 2025 as well. Following this, he believes the central bank will cut all the way to 2.75% or 2.5% by 2026. This could lead to significant decreases in short term interest rates in 2025.

Opes Partners, a property advisory firm, expect the OCR to reach 2.75% in the long term, and, based on that, they say one year fixed rates should reach an average of around 5% (or maybe a little lower). They generally recommend fixing for the one year term, saying that right now there’s more of a risk of fixing for too long than too short. 

Glen Mcleod at Edge Mortgage Brokers in Auckland told RNZ in September that the shorter term fixes were looking like better value, and this was before the OCR was cut by 50 basis points (bps) in October:

"If you're looking at a 25bps cut [to the OCR] in October and 50 in November… then 25 each change till mid next year, you're well under that two-year rate and you've wasted money."

Lender’s advertised rates are almost always higher than the actual rates they provide many customers. For example, ANZ is currently advertising a 1 year fixed rate special with a rate of 5.99% but in their online banking app they’re offering customers a 1 year fixed rate of 5.79% (as of 7/11/2024). Speak to a mortgage broker to ensure that you get the best available rate from your lender.

When predicting interest rates in NZ it’s helpful to also look at the OCR, as this number obviously affects rates offered by banks. Here’s what the experts are saying:

If the majority of bank economists are correct, things are about to get better for Kiwis with mortgages. The OCR is expected to decrease to somewhere between 2.75% and 3.5% in the next 12 to 18 months, which should put downward pressure on interest rates. 

Economists expect that longer term interest rates (2 years plus) have already factored in most of these future OCR cuts, so they’re lower than short term rates right now. Rates of three to five years in particular aren’t expected to get much lower. 

That also means that rates of one year and shorter may fall further than those longer rates in 2025. 

Unfortunately, nobody can tell you how to manage your mortgage. What’s most important is that you get advice from an advisor you can trust, and structure your loan in a way that suits you and helps you reach your goals (more on getting advice later). 

With that disclaimer out of the way, here’s what the experts are saying:

“The 1-year rate is the most expensive today, but once interest rates come down, today's longer-term rates will look expensive”

“Right now, there is more risk in fixing for too long than fixing for too short.”

“ .. The recommendation we’re making to most borrowers at the moment [1/10/24] is to fix shorter-term, between six months and a year, to allow you to ride rates down as further OCR cuts come through.”

He adds that the most important thing is that you go for a rate that’s suited to your situation, that you understand the risks involved and get expert advice. For example, some people may prefer longer term rates for the added certainty. 

“Breakevens show that rates need to fall by quite a bit over the next 6-12mths to make fixing for a shorter term cheaper in the long run than just fixing for, say, 2 years … but with each passing month, we are likely getting closer to the point where locking in already-lower longer-term rates may be worth it.”

By splitting your mortgage into different, staggered fixed term durations you gain extra security and flexibility. The idea is that your fixed terms don’t all expire at the same time and your costs don’t suddenly increase – at the same time you can still benefit from falling rates. 

"Consider a mix of fixed-term durations including 6 months, 1 year, 2 years and 5 years," he says.

This strategy means you will never get the lowest rate that you might have if you’d timed the market, but it also reduces the risk of paying a much higher rate than you need to. 

Break even analysis is a way to help decide which interest rate is likely to be the better deal in future. It’s a tricky concept to explain so let’s look at an example:

You’re considering whether to fix for one year at ANZ’s carded rate of 5.99%, or two years at 5.69%. 

• The total interest charge for a two year rate would be 5.69 x 2 = 11.38% total. 

• That means if we fix for one year at 5.99% and then refix a year later at anything under 5.39% the one year rate is a better deal (Here’s how we worked that out – two year total interest cost 11.38% - one year interest cost 5.99% = 5.39%).

• The above calculation isn’t 100% accurate because of compounding interest, but it’s close. 

• It tells us that if we think one year interest rates will fall below 5.39% in a year, we should go for one year to minimise the interest we pay. If we think they’ll be above that number, two year is a better deal. 

These calculations are, of course, hypothetical because we don’t have a crystal ball, but they can be a useful way to make decisions based on what we think is likely to happen.