Fixed rate mortgage reset will hammer New Zealand housing


As we know, the Reserve Bank of New Zealand’s (RBNZ) has aggressively hiked the official cash rate (OCR) from 0.25% in August 2021 to 2.0% currently.

New Zealand’s housing market is already tanking, with median dwelling values nationally plunging 9.2% from the November 2021 peak and the stock of unsold homes ballooning.

The RBNZ has also flagged that the OCR will hit 3.4% by December before peaking at 3.9% in June 2023. This would mean that the RBNZ is only around half way through the rate hike cycle.

Citi bank analyst Brendan Sproules believes New Zealand’s housing market is so far coping better than expected, but will come under increasing pressure once swathes of fixed rate mortgages expire later this year:


With new mortgage rates already spiking to more than five per cent in New Zealand, Mr Sproules said the canary, or NZ households, was “more resilient than expected”.

“Mortgage activity and house price growth have decelerated rather than fallen sharply,” he said.

“Also, for most borrowers, who still enjoy an average mortgage rate of just 3.14 per cent, rate hikes are yet to dent the household budget.

“But the next six months are crucial, when most of the current fixed-rate mortgages are due for a rate-reset”…

Mr Sproules said the NZ mortgage market was primarily a fixed-rate market, which had some serious implications for the effectiveness of monetary policy.

For most borrowers, the impact of eight equivalent rate hikes of 25 basis points each since the end of 2021 had mostly not yet been felt on the household budget.

These are pertinent points by Brendan Sproules. Unlike Australia where floating rate mortgages dominate, the bulk of Kiwis are on fixed rate mortgages of two years or less. This means that Kiwis that originated mortgages at rock-bottom pandemic rates have yet to impacted by the RBNZ’s aggressive monetary tightening.

This situation will obviously change towards the end of this year when these fixed rate mortgage terms start to expire and Kiwi borrowers are forced to refinance to significantly higher (perhaps double) mortgage rates. That is when the impact of the RBNZ’s tightening will truly be felt.


Household consumption will tank and the New Zealand economy could easily be thrown into a sharp recession. House prices will also very likely experience peak-to-trough losses of more than 20%.

How deep the downturn goes will depend on how aggressively the RBNZ hikes rates.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.