One-year rates have dropped to around 4.65% at major banks, while four-year terms sit near 5.39%. Here's what is behind the divergence — and why some economists say short-term fixing may offer better value right now.
New Zealand's mortgage rate landscape has shifted in recent weeks, with a notable gap opening up between shorter and longer fixed terms. One-year rates at the major banks have fallen to around 4.65%, while four-year rates remain closer to 5.39% — a spread that has economists paying close attention.
The movement reflects changes in wholesale funding costs. Banks set their fixed mortgage rates based on where they can borrow in wholesale markets, and those wholesale rates have been falling — particularly at the longer end of the curve — following a decline in oil prices and a de-escalation of geopolitical tension in the Middle East.
What the big banks are saying
ANZ's economists recently addressed the term decision directly. In a Property Focus update, they noted that financial markets were pricing in a higher OCR endpoint than previously expected, but that long-term wholesale rates had already moved lower. Their assessment was that the rate environment gave little incentive to fix for longer right now — shorter terms appeared to offer better value given where pricing was sitting.
Their view in brief: one-year rates would need to rise to roughly 5.83% in a year's time for a two-year fix to outperform two consecutive one-year fixes. They did not expect that outcome. "The OCR would need to be nearer 4% than 3% for one-year mortgage rates to get closer to 6%, rather than 5%," they noted. That calibration matters because the reason two-year rates already sit above one-year rates is that markets are already pricing in expected hikes — meaning when those hikes arrive, they would not come as a surprise to longer-term fixers.
The other side of the argument
The counterargument is not complicated: fixing for longer eliminates the risk of rates rising when a shorter term expires and needs to be refixed. That certainty has genuine value, particularly for households on tight budgets.
ANZ economists acknowledged this directly. "If that is low, a longer term or a mix of terms may suit you better," they said. Spreading fixes across multiple terms — sometimes called laddering — is one approach that sits between locking in the shortest rate and committing to the longest.
Other economists on the outlook
ASB's economics team expects the Reserve Bank to hold the OCR at its July meeting, with the first increase coming in September. Westpac's economists share that expectation of a July hold, shifting from September. Infometrics chief executive Brad Olsen said the case for a July rate hike had weakened since the May monetary policy statement, though his team was still reviewing its forecasts.
Olsen also made a point worth noting on the mechanics of how mortgage rates move: "mortgage rates have already moved ahead of the OCR". Swap rates and bond rates have pulled back from recent peaks, which has given some banks room to reduce retail fixed rates — particularly on longer terms. He cautioned against expecting much more easing, but also noted that a first OCR increase would not automatically push all fixed rates higher immediately.
The Kiwibank move
The rate shifts are playing out unevenly across lenders. Kiwibank adjusted its rate card lower in the past week, with its two-year fixed rate moving to among the lowest of the major banks, according to interest.co.nz. Other terms at Kiwibank were not all as competitive, reflecting how lenders are making individual choices about which parts of the curve to price most aggressively.
For borrowers currently refixing, the practical question is not simply "which term is cheapest" but how much certainty is worth paying for — and whether the rate environment makes the premium for longer terms unusually high by historical standards.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.