Fixed mortgage rates are about to rise again as wholesale rates climb after the OCR turn

Homeowners who have enjoyed a long run of falling borrowing costs are being warned to brace for the turn. After the Reserve Bank lifted the Official Cash Rate for the first time in more than three years earlier this month, the wholesale interest rates that set fixed home loan pricing have kept climbing, and banks are now signalling that fixed mortgage rates are about to follow them up.

The clearest signal has come from the Co-operative Bank, whose chief executive Mark Wilkshire said lenders would have to raise fixed rates “pretty soon”. He pointed out that wholesale rates had risen about 30 basis points over the previous couple of weeks and that banks would have to start passing that cost on to borrowers, even though the July move in the Official Cash Rate had already been priced in, as reported by the New Zealand Herald.

That distinction matters, because fixed rates and floating rates move for different reasons. Floating rates track the Official Cash Rate almost directly, which is why every major bank passed on the full 25 basis point increase to floating borrowers within days of the Reserve Bank’s decision. Fixed rates are set instead by wholesale swap markets, where banks borrow to fund fixed lending, and those markets have been grinding higher on their own regardless of what the Reserve Bank does next.

The numbers tell the story. Financial commentary site interest.co.nz reported that the one year swap rate had risen to 3.45 percent, a lift of 10 basis points in ten days, while the two year swap rate had jumped 16 basis points to 3.81 percent. Writer David Chaston noted that when one year swaps were last at 3.45 percent, back in February 2025, the equivalent one year fixed home loan rate was 5.50 percent, well above the roughly 4.65 to 4.79 percent most banks are advertising today. His conclusion was blunt, warning of “substantial movements up in fixed rates” over the coming days and weeks.

The backdrop to all of this is the Reserve Bank’s decision on 8 July to lift the Official Cash Rate from 2.25 to 2.50 percent, its first increase in more than three years. The bank has signalled that more rises are likely before the end of 2026 as it tries to head off inflation pressure linked to higher fuel costs and global tensions. Markets are now pricing in two further quarter point hikes this year, with a one in three chance of a third, according to interest.co.nz’s reading of wholesale pricing.

For borrowers, the practical effect is that the window for locking in a low fixed rate may be closing. Anyone coming off a fixed term in the next few months, or sitting on a floating rate and thinking about fixing, faces a live decision. If the warnings are right, the one year fixed rates around 4.65 percent that the sharpest banks are offering could soon carry a further 25 to 35 basis points, adding real money to repayments over the life of a loan. On a $600,000 mortgage, a 0.30 percent rise on a one year fixed term works out to roughly $1,800 more in interest over that year.

Higher borrowing costs also feed straight into what people can afford to pay for a house, at a time when the property market is already flat. The amount a bank will lend, and the repayments a household can stomach, both shrink as fixed rates climb, which tends to cap how far prices can run even when listings are thin. Winter has already pulled sales activity to a three year low, with just 199 residential properties offered at the auctions interest.co.nz monitors in the week to 24 July, the quietest week outside the Christmas break since August 2023.

There is a flip side for savers. The same rising wholesale rates that push mortgages up also lift what banks can pay on term deposits, and the returns on offer have already crept higher, with six, nine and twelve month terms recently quoted around 3.45, 3.60 and 3.90 percent. Chaston’s advice to savers was to shop around rather than accept the first number their bank offers, warning that unless savers build the same habit of switching that borrowers have, they will tend to be short changed.

Not everyone thinks the increases will be dramatic. Mortgage broker Squirrel argues that once the Official Cash Rate works its way back towards a neutral setting of around 3 percent by the middle of 2027, one and two year fixed rates should settle somewhere between 4.8 and 5.3 percent, not far above where they sit now. On that view the current move is less a return to the punishing rates of a few years ago and more a normalisation, with the Reserve Bank keen to make any increases gradual and well signposted.

Even so, the direction of travel has clearly changed. For most of the past two years the story in the mortgage market has been about how far and how fast rates would fall. The conversation now is about how quickly they will rise, how much of the wholesale increase the banks choose to absorb, and whether households that stretched to buy at the bottom of the rate cycle have left themselves enough room. With more Official Cash Rate rises flagged and swap markets already moving, the next few weeks of rate sheets will be worth watching closely.

Have you locked in a fixed rate recently, or are you weighing up whether to fix now before the increases land? Share your thinking 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 🙂