Have interest rates really bottomed out? As easing signals meet rising bad debts, this could be your last chance to lock in a low rate

As the high-interest-rate cycle draws to a close, the market has finally had a long-awaited chance to breathe: the Official Cash Rate (OCR) has fallen from its peak to 3.25%, and mortgage rates across the board have also dropped markedly. For many New Zealand households carrying large mortgages, this is undoubtedly good news. But the question is—is this really the start of a turnaround?

Our review of current market data, bank loan quality indicators and expert forecasts suggests that although interest rates have fallen, risks remain; although confidence is improving, the recovery is still fragile; and although house prices have stabilised, growth remains difficult.

1 A ‘last dance’ for mortgage rates? Room for easing is narrowing

The OCR has been cut repeatedly since mid-2024 and now stands at 3.25%, bringing mortgage rates down across the banks. The average one-year fixed rate has fallen to 5.64%, the two-year rate to 5.63%, while floating rates remain around 6.92%.

However, Infometrics chief economist Brad Olsen warns that ‘the era of large interest rate cuts is over’.

He believes: ‘There is very limited room for further easing unless global financial conditions loosen substantially further, or the OCR is cut again.’

This assessment aligns with the view of BNZ chief economist Mike Jones. He believes the OCR could still reach a cycle low of 2.75%, but ‘the timing may be pushed back to October or later’, with the Reserve Bank more likely to hold steady in the short term.

This means that for buyers waiting for lower interest rates before entering the market, the opportunity may be gradually slipping away.

2 Rate cuts have not removed the pressure: mortgage troubles continue to rise

Although lower interest rates provide breathing room, the data shows that some households remain deep in mortgage repayment difficulties.

According to the latest Reserve Bank of New Zealand data:

Total non-performing mortgages rose by 1.2% in May to NZ$2,448,000,000;
Within that total, the portion classified as ‘problem loans’ jumped by 6% to NZ$534,000,000;
‘Problem loans’ have grown by nearly 25% since the start of the year, far exceeding market expectations.

One reason behind this is the continuing rise in unemployment. By June 2025, New Zealand’s unemployment rate had risen from 4% at the start of 2024 to 5.2%, while job advertisements had fallen 50% from their 2022 peak.

This directly affects households’ ability to repay mortgages and also holds back recovery in sectors dependent on domestic demand, such as retail and services. Data shows that retail card spending in May 2025 was below its September 2022 level, while spending per person was down 6% from its 2023 peak.

Clearly, lower interest rates have not truly unlocked households’ spending potential. Many families are still ‘preparing for the storms ahead’.

3 A cautious housing recovery, with sellers still in control

In the property market, house prices have edged up in some areas and sales volumes have risen modestly, but the overall recovery remains weak.

Brad Olsen notes: ‘There are still plenty of properties for sale, and buyers remain cautious. New and existing listings are coming onto the market together, creating an imbalance between supply and demand.’

Most homebuyers have now gradually shifted away from the floating rates or 6-month fixed terms popular at the start of the year towards fixed-rate products with terms of 1 to 2 years. Data shows that by May, the share accounted for by 1–2-year fixed-rate mortgages had risen to 61%.

This strategy of seeking ‘medium-term stability’ reflects increasingly conservative market expectations about how much further interest rates can fall. It also suggests buyers no longer expect a sharp rise in house prices in the short term.

On the supply side, the construction downturn appears to be stabilising. Residential construction volumes grew 2% quarter on quarter in the first quarter of 2025, the first positive growth in seven quarters.
However, the construction recovery is still moving sideways and needs support from both policy and market confidence.

4 A multi-speed economic recovery, with uncertainty still dominant

Overall, New Zealand’s economy is experiencing an uneven recovery:

Exports and commodity prices remain strong, supporting overall GDP;
Construction has rebounded from its trough, but the recovery remains weak;
Domestic demand, employment and wage growth remain subdued, while retail, services and manufacturing indicators are still in contraction territory;
On inflation, although headline price pressures remain elevated, core inflation pressures have eased and are expected to fall to around 2% by mid-2026.

The Reserve Bank is therefore in no hurry to ease further, choosing instead to wait and push back its timetable for rate cuts.

Interest rates may have a little further to fall, but the window for securing a bargain is closing.
Household debt pressures continue to emerge, but the market has not entered a systemic crisis.
Construction activity and business confidence are gradually recovering. The economic recovery is slow, but it is continuing.

For homebuyers, this is not a moment to buy at the bottom. It is a time to make a level-headed assessment and choose an interest rate strategy that suits their cash flow and plans.

Readers are welcome to join the discussion: have you decided how to refix your mortgage? Where do you think house prices will head over the coming months? Are you planning to enter the market or keep waiting? Share your thoughts in the comments.

Looking ahead: cautious optimism, without blindly following the crowd

New Zealand’s property market is no longer caught between the extremes of panic selling and frenzied buying as prices rise. It has entered a relatively rational phase of reassessment.