New Zealand homeowners hoping for cheaper mortgages over the next year may be in for a rude shock, with ANZ now forecasting that the Reserve Bank will start lifting interest rates again as soon as next month.
In its latest Property Focus report, the country’s largest bank says it expects the official cash rate to climb three times before the end of 2026, taking it from the current 2.25 percent to around 3 percent. ANZ had previously pencilled in a peak of 3.5 percent, so the new call is a touch softer, but it still marks a clear turn away from the rate cuts that defined much of the past two years.
The shift matters because the cash rate is the lever the Reserve Bank pulls to set the cost of borrowing across the economy. When it falls, banks tend to pass on cheaper home loans. When it rises, mortgage rates follow, and household budgets tighten. The Reserve Bank held the cash rate at 2.25 percent at its most recent review, but warned it could take decisive action if inflation kept running hot.
That warning is now feeding through to the bank forecasts. ANZ’s economists say that based on their view of the cash rate, they anticipate mortgage rates will continue to lift through this year. They are quick to add that rates are not expected to return to pandemic-era highs, so this is a tightening rather than a return to the punishing levels seen a few years ago.
The reason for the change of heart is inflation. ANZ now expects annual inflation to peak at 4.4 percent in the June quarter, well above the 1 to 3 percent band the Reserve Bank is required to keep prices within. The bank notes that inflation was already lurking troublesomely above the target range at 3.1 percent before a fresh oil price shock, driven by tensions in the Middle East, pushed fuel costs higher. Petrol prices have eased again in recent days after the United States and Iran reached an agreement, but the damage to the near-term outlook had already been done.
For the housing market, the message is sobering. ANZ is forecasting a 2 percent fall in house prices across 2026, though it concedes that call could prove unduly pessimistic if the economy holds up better than expected. The bank points to slowing economic growth, the prospect of rising interest rates and the possibility of a capital gains tax after the election as factors weighing on buyer confidence.
That is a notable change from earlier in the year, when ANZ had been picking modest price growth. As recently as January the bank was forecasting house price inflation of around 2 percent for the year, and before that it had expected gains closer to 5 percent. The steady downgrades reflect how quickly the mood has soured as the prospect of rate cuts has been replaced by the prospect of rate rises.
The wider picture is one of an economy that is expected to keep growing but only slowly. Westpac has said New Zealand should avoid slipping into recession but faces a rocky year of weak growth, rising unemployment and higher interest rates. Treasury’s Budget forecasts have growth picking up to 2.3 percent in the coming year before accelerating further out, but much of that recovery now hinges on how stubborn inflation proves to be.
There are still some bright spots for would-be buyers. Sale numbers have been falling, but first-home buyers are increasingly active and now make up about 27.7 percent of all purchases, a sign that those locked out during the boom are taking advantage of softer prices and stepping into a quieter market. Residential auction clearance rates have slipped as the market settles into winter, with only about a third of properties offered selling under the hammer, which gives buyers more room to negotiate.
For existing homeowners on fixed rates, the practical advice has not changed. Anyone coming off a fixed term in the next year would be wise to budget for a slightly higher repayment rather than assume the cheap money of recent years will still be on offer. The gap between the lowest advertised rates and what borrowers might face on rollover is the kind of detail that can quietly reshape a household budget.
The forecasts are, of course, just that. ANZ itself is careful to flag the uncertainty, and a single soft inflation print or a calmer global oil market could change the outlook again. But the direction of travel is now clear enough that the era of falling mortgage rates appears to be over, at least for a while, and households would do well to plan accordingly.
What does a higher cash rate mean for your mortgage or your plans to buy this year? Share your thoughts in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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