Why the OCR drop hasn't lowered mortgage rates yet
From Aaron’s YouTube: “Interest Rate Update #newzealand #firsthome #kiwisaver ##nzfirsthome #nzmortgage #homeloan #asb #anz”
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Posted 10 April 2025
The short version
- The OCR drop hasn't yet translated to lower fixed mortgage rates.
- Swap rates are more closely tied to fixed mortgage rates than the OCR.
- Even when swap rates drop (as they have recently), banks don't always immediately adjust fixed rates.
- Homeowners may need to wait longer to see the full impact of OCR changes on mortgage rates.
The OCR drop that didn't change anything
The OCR (Official Cash Rate) dropped on Wednesday, but by Friday, no banks had reduced their fixed mortgage rates. While this might seem surprising at first, Aaron explains that it's actually more common than people think. The OCR is set by the Reserve Bank, but banks don't automatically follow its movements in lockstep.
Interest rates are influenced by many factors beyond just the OCR. Banks consider their own funding costs, market competition, and economic forecasts when setting rates. A single OCR change, especially a small one, doesn't always prompt immediate action from lenders.
Swap rates - the real driver of fixed rates
Aaron highlights that swap rates - the rates banks pay to borrow money in wholesale markets - have more direct influence on fixed mortgage rates than the OCR. These swap rates have actually decreased recently, which would normally suggest fixed mortgage rates should follow.
But there's often a lag between swap rate movements and bank pricing. Banks won't necessarily drop rates immediately even when their funding costs decrease. They may wait to see if the trend continues, or time their changes strategically in the market.
What this means for homeowners
For now, the message is simple: watch and wait. While economic indicators suggest mortgage rates could decrease soon, the timing remains uncertain. Some banks might move first with small reductions, while others hold out longer.
This situation highlights why Aaron and other mortgage advisers track multiple indicators, not just the OCR. If you're considering fixing or refixing, it's worth discussing the current swap rate trends with your adviser to time your decision well.
This is general information, not personalised financial advice. For advice on your situation, talk to Aaron.
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