Is New Zealand entering an era of rising interest rates? Five major banks follow suit: what will change for mortgages, house prices and living costs?

Following New Zealand’s first interest rate rise in three years, the effects are already beginning to show in ordinary households’ mortgages and living costs.

After the Reserve Bank of New Zealand raised the Official Cash Rate (OCR) from 2.25% to 2.50% last week, Westpac and Kiwibank were the first to announce increases to some floating mortgage and revolving credit rates. BNZ, ASB and ANZ subsequently confirmed they would follow suit, announcing changes to some floating mortgage rates alongside increases to rates on selected savings products. For floating-rate borrowers, higher repayment costs are no longer simply a market forecast, but an approaching reality.

More significantly, this rate rise is very likely not the last.

Cotality chief economist Kelvin Davidson expects further OCR increases this year if inflation pressures fail to ease significantly. Market attention has quietly shifted to “how many more rate rises will there be this year?”

Banks respond swiftly as floating mortgage rates rise

Banks were quick to respond after the Reserve Bank of New Zealand announced a 25-basis-point increase.

Kiwibank announced it would raise its floating mortgage and offset mortgage rates from 5.75% to 6.00%, and its revolving credit rate from 5.80% to 6.05%.

The changes apply to new lending from 13 July and existing customers from 27 July.

Westpac subsequently announced that floating home and business lending rates for new customers would all rise by 0.25 percentage points from 13 July, with existing customers moving to the new rates from 16 July.

Following the changes, Westpac’s Choices Floating Rate and Choices Offset Rate will rise to 6.14%, while its Choices Everyday Rate will increase to 6.24%.

However, none of the banks has adjusted fixed mortgage rates for now.

This does not mean fixed rates will be unaffected. Rather, they generally depend more on wholesale funding costs and market expectations of future interest rates. In other words, some anticipated OCR increases may already be reflected in current fixed rates.

Why raise rates while the economy remains weak?

Before this monetary policy meeting, economists at several banks, including ASB, Kiwibank and Westpac, had predicted that the Reserve Bank of New Zealand would hold rates steady to give the economy more breathing room.

Ultimately, however, all six members of the Reserve Bank of New Zealand’s Monetary Policy Committee supported a rate rise. Governor Anna Breman said the committee reached consensus relatively quickly.

The key factor behind the decision was concern that inflation could become persistent again, rather than an already overheating New Zealand economy.

Breman said inflation was directly affecting people’s lives. Restoring low and stable inflation mattered for household purchasing power and would also support long-term growth in the economy and labour market.

In the Reserve Bank of New Zealand’s view, current interest rates still provide some stimulus. Keeping rates too low could make financial conditions excessively loose, weaken the New Zealand dollar and further increase import costs and inflation pressures.

The central bank therefore chose to take an initial step towards higher rates, even with the economic recovery still fragile.

The central bank is concerned about new risks in the coming months

The Reserve Bank of New Zealand also stressed that the future interest rate path remained highly uncertain. Further increases would depend on incoming economic data and international developments.

In the central bank’s view, the real concern is not just current inflation, but a possible fresh wave of pressure over the coming months.

If the situation in the Middle East deteriorates again, global oil prices could rise once more. Extreme weather affecting agricultural production could also push up food prices.

These risks may not materialise, but if they occur together, inflation could persist for longer than markets expect.

Breman therefore said the central bank was unwilling to prejudge the outcomes of its next few monetary policy meetings. She stressed that multiple changes were unfolding in the global economy, making it difficult to say how high interest rates would ultimately rise.

Forecasts released by the Reserve Bank of New Zealand in May this year suggested the OCR could rise to around 3% early next year. However, Breman did not describe that forecast as the bank’s most accurate current roadmap, saying only that it was its most recently published interest rate track.

Food supply costs rise again as inflation pressures persist

The latest food supply cost figures also suggest the Reserve Bank of New Zealand’s concerns are not unfounded.

Figures jointly released by Infometrics and Foodstuffs New Zealand show that in June 2026, the average cost of goods supplied to supermarkets including New World, Pak’nSave and Four Square rose 2.1% compared with the same period last year.

Economist Brad Olsen said the situation was less severe than markets had feared when the Middle East conflict began, but there was still no room for complacency.

He said things “could have been worse”, but that did not mean New Zealand had escaped the risk of price rises.

The figures show that supply costs rose for more than 6900 products in June alone, the fifth-highest monthly total since 2018.

The increases affected a wide range of products, including fruit, fish fillets, shellfish, chips, hash browns, frozen foods, canned tuna, packaged milk, noodles and bottled sauces.

Although costs fell for some bread and beer, supply costs across major supermarket product categories generally remained above the same period last year.

Supplier costs account for around two-thirds of supermarket shelf prices, meaning changes on the supply side are very likely to filter through to consumers over time.

Olsen noted that around half the cost increases were linked to earlier fuel price rises, while the other half reflected broader underlying cost pressures. This suggests current food price increases cannot be attributed entirely to oil prices.

Fuel prices have fallen noticeably recently, so some transport and fuel-related costs may gradually decline over the coming months. However, supply chain price adjustments usually involve a lag. Costs such as packaging materials often only reflect changes after businesses make new purchases.

This means consumers may not immediately see lower supermarket shelf prices even if global oil prices fall.

More mortgage borrowers choose to fix rates for longer

With the interest rate outlook turning upwards again, many mortgage borrowers have begun changing their approach.

Cotality chief economist Kelvin Davidson noted that, in each of the six months through to May this year, around half or more of new mortgages had been fixed for longer than a year.

Two-year fixed terms were the most popular, while 18-month and three-year fixed terms also attracted growing interest.

By contrast, only around a fifth of borrowers chose a one-year fixed term, well below the levels commonly seen in the past.

This suggests more households are reluctant to keep betting on a rapid fall in short-term rates. Instead, they want longer fixed terms to provide greater certainty for future household budgets.

With global instability and the possibility of renewed inflation, fixing for a slightly longer term is akin to buying insurance.

Of course, this approach has a cost. If the economy suddenly weakens and the central bank resumes cutting rates, borrowers on longer fixed terms may not benefit immediately from lower rates.

There is therefore no universal answer to whether borrowers should fix for a year, two years or longer. The choice depends on household cash flow, repayment capacity and tolerance for risk.

New developments are also emerging in the property market

Beyond interest rates, the property market itself is showing some new trends worth watching.

Davidson recently studied the price performance of some flood-affected homes in Auckland and Hawke’s Bay.

These properties initially sold at significant discounts after the disasters. Over time, however, some buyers became willing to accept the associated risks in exchange for a lower purchase price.

As a result, demand for some affected properties remained strong, with their prices even rising faster than those of other homes.

This suggests some buyers are reassessing the balance between risk and price while housing affordability remains stretched.

Meanwhile, although New Zealand’s net migration has picked up recently, it remains below normal levels overall and is not yet strong enough to become a major driver of sharp increases in house prices or rental demand.

Expert forecast: two more rate rises possible this year

Is this rate rise a one-off adjustment, or the start of another cycle of increases?

Kelvin Davidson expects there is a possibility of at least two more OCR increases this year.

His assessment is based mainly on inflation remaining elevated, interest rates still sitting below the so-called “neutral level”, and the earlier easing in financial conditions.

However, the Reserve Bank of New Zealand itself has made no commitment to further increases.

The central bank stressed that each future step would depend on changes in inflation, employment, economic growth, global oil prices and international developments.

This makes forthcoming inflation and price data particularly important.

If food, fuel and other goods prices continue rising, the central bank may be more inclined to raise rates again. Conversely, if the economy weakens significantly, unemployment rises or inflation falls quickly, it may slow the pace of tightening.

What does this mean for households with mortgages?

Floating-rate borrowers will feel the most direct effects of this OCR increase.

For a loan of NZ$500,000, for example, an interest rate increase of 0.25 percentage points could add approximately NZ$1250 to annual interest costs, or around NZ$104 a month, based on a rough interest-only calculation.

Actual repayment changes will vary depending on the loan structure, term and outstanding principal. But for households already facing cost-of-living pressures, an extra hundred-plus dollars a month remains a significant expense.

Households on fixed rates will not be affected immediately, but will still face prevailing market rates when they next refix.

For savers, however, higher rates could bring some benefits. Westpac has said that a rising OCR usually means more attractive savings rates. If the OCR continues to increase, returns on term deposits and some savings accounts could improve further.

Commentary: New Zealand may be moving beyond expectations of rates only falling

Over the past two years, the most frequently discussed question in New Zealand’s market has been: when will mortgage rates fall further?

Following this OCR increase, however, the question has changed.

More people are now worrying less about “will rates fall again?” and more about “how many more increases will there be this year?”

This does not necessarily mean New Zealand has fully entered a prolonged cycle of rising rates. But it does show that the assumption that rates would simply keep falling has been broken.

For the Reserve Bank of New Zealand, this is a difficult balancing act.

Raising rates too slowly could allow inflation to accelerate again. Raising them too quickly could undermine an already fragile economic recovery and further dampen household spending and business investment.

Over the coming months, global oil prices, food prices, the situation in the Middle East, extreme weather and domestic economic performance could all influence the central bank’s next decision.

For ordinary households, the key issue in the second half of this year is no longer simply whether house prices will rise, but whether mortgage rates, living costs and household cash flow leave them able to withstand the next round of changes.

If inflation does not fall as expected, this first rate rise in three years may indeed be only the beginning.