ASB has cut its mortgage rates for the fourth time this year, offering a two-year fixed home loan at 4.99%—a level not seen since 2022. The move, which follows a 50-basis point cut to the Reserve Bank’s Official Cash Rate (OCR), has intensified competition among New Zealand’s major lenders and raised questions about whether mortgage rates could fall even further.
ASB’s Latest Rate Cuts
On Monday, ASB announced reductions across several of its fixed-term mortgage rates. The bank’s two-year rate dropped 30 basis points to 4.99%, matching ANZ’s recent move. ASB also lowered its one-year rate from 5.49% to 5.25%, and its three-year fixed rate from 5.59% to 5.35%.
Adam Boyd, ASB’s executive general manager, described the reductions as part of a commitment to provide “interest rate relief” for borrowers. “Today’s fixed-rate decreases will appeal to a broad range of Kiwis, with our sub-5 mortgage rate offering a strong medium-term option for people looking for added certainty,” Boyd said.
ASB was not the only bank adjusting rates. Westpac also dropped its two-year fixed rate to 4.99%, aligning with ASB and ANZ. However, Westpac previously offered a three-year rate at 4.99% but has since increased it to 5.39%.
Why Are Banks Cutting Mortgage Rates?
The latest rate reductions come in response to the Reserve Bank’s decision to lower the OCR from 4.25% to 3.75%. A lower OCR typically reduces borrowing costs, prompting banks to pass savings on to customers through lower mortgage rates.
However, industry analysts suggest that competition between banks is also a major factor. With the housing market showing signs of stabilising and banks looking to attract borrowers, some lenders may be willing to sacrifice margins to gain market share.
Brad Olsen, chief executive of Infometrics, noted that recent cuts have been driven by both economic conditions and bank competition. “It’s likely that there might be some more downward pressure on rates as we move through the year, although part of that – at the moment at least – seems to be driven by more intense competition from the banks as they jockey for position,” he said.
Implications for Homebuyers and Borrowers
The latest cuts could bring significant savings for homeowners, particularly those looking to refinance from higher fixed or floating rates. Many borrowers locked in mortgage rates above 6% last year and could see their repayment costs drop if they refix at a lower rate.
Squirrel chief executive David Cunningham pointed out that the wholesale two-year rate is currently 3.5%, suggesting banks are offering some of the lowest margins seen in years. He expects mortgage rates to settle in the 4.5% to 5% range for one- and two-year terms if the OCR continues to fall.
For first-home buyers, the sub-5% rates may provide a window of opportunity. However, the question remains: should borrowers fix their mortgage now or wait for further reductions?
“The Reserve Bank has all but promised 25bp cuts on 9 April and 28 May, with another 25bp highly likely [in July or August],” Cunningham said. “If the OCR does get to 3%, as the RBNZ strongly signalled in the press conference last week, then we should see rates settle in a 4.5 – 5 range for one and two-year terms. That could last for a year or two.”
On the other hand, Shamubeel Eaqub, chief economist at Simplicity, suggested there could be further room for reductions if banks continue to compete aggressively. If banks are willing to give up margin, rates could drop by up to one percentage point further, he said.
Will Mortgage Rates Drop Further?
While the recent cuts are positive news for borrowers, experts caution that there are limits to how low rates can go. The Reserve Bank has indicated that stability is a priority, with Governor Adrian Orr emphasising that a “boring” OCR—one that does not move for extended periods—would signal that inflation is under control.
If the OCR continues to decline, mortgage rates could edge lower. However, banks also factor in their funding costs and profit margins, which may prevent rates from dropping significantly below current levels.