At the time of writing in mid-September, the Federal Reserve (which is the US equivalent of our Reserve Bank) hadn’t yet made the call on their cash rate. The expectation was that they would deliver their first cut in four years, with predictions being evenly split as to whether they would cut by a quarter or half a per cent.

Our longer-term rates tend to be more affected by what is happening overseas, so we may see a drop in these depending on the Federal Reserve’s decision, but be wary of fixing too long. There is a chance that while attractive now, it may look expensive in a year or so, and the resulting break fee will not be as enticing.

Domestically, New Zealand GDP numbers for the June quarter were about to come out, and this probably would have proved to be pretty sobering, likely showing we are further into a recessionary cycle.

Interest Rates

On the interest rate front, this is likely to make the Reserve Bank’s decision to cut the cash rate at their next review date of October 9 a lot easier. I expect that they will look to cut by a quarter of a per cent this time, with the next key inflation data not coming out until after the review.

The last review of the year (on November 27) will garner a lot more attention as the Reserve Bank will have had sufficient time and information from the September quarter inflation numbers (coming out on the October 16) and then the unemployment update for the same quarter coming out on November 6.

One positive for mortgage borrowers and property investors, with these presumed cuts, is that bank-loan affordability should start to get easier.

Many borrowers have been locked out on the back of a high-rate environment, with banks (until recently) assessing all borrowers existing and any further proposed mortgage debt at interest rates around 9 per cent.

On the back of the cash rate cut in August, banks immediately followed by cutting these test rates by the same amount (0.25 per cent) which results in borrowers’ affordability looking better to these banks.

Test Rate Cuts

These test rates will continue to be cut as the Reserve Bank drops the OCR at this year’s remaining reviews and across the 2025 calendar year, but this will bring the debt-to-income rules info focus earlier than had been expected.

The debt-to-income rules were implemented on July 1 this year and quickly disappeared from public discussion as the test rates were more restrictive than these new rules. As these test rates drop across the 2025 year, you can expect to hear a lot more about them.

krispedersen.co.nz