Home loan borrowers were convinced in 2024 that future fixed rates would be lower.
And the turn lower of the OCR encouraged that view.
But history clearly shows that even though the OCR may fall, mortgage rates don't fall as fast.
So, if the OCR continues to fall in 2025 - and wholesale markets are suggesting that, absent new unexpected conditions that need to be prices in - then will fixed rates follow - but at a slower pace?
Despite the barbeque philosophy that "banks will conspire to keep them up", that in fact probably won't be the reason, just as it wasn't in earlier similar cycles.
Banks are constrained by regulation. They have core funding and mismatch regulations to meet. In turn that means they must raise an outsized share of their funds in the "non-market" sector (that is, from depositors). They will need to pay enough to stay competitive on the term deposit and savings account front no matter what the OCR is. And in 2025 they will have to start paying the deposit guarantee levy. (You can see our analysis of the term deposit sector here.)
And behind all that is the "market sector" where they raise wholesale funds. And at present, it seems clear that international rates will remain relatively higher for longer as some major economies are still struggling to tame inflation, especially the US.
Paying 'more' for local savings, and paying 'more' for wholesale funding, will inevitably mean fixed rate mortgages won't fall as fast at the OCR is expected to.
History also shows this. Prior to 2008, the difference between the one year fixed rate and the OCR averaged +1.25% over the six years we tracked. Then the OCR fell sharply as the GFC bit, and from 2009 to early 2023 that same margin averaged +2.70%. But then this latest trimming cycle for the OCR has gathered pace, and that difference has fallen to just over +1.50%. And that cycle is still far from finished.
And if we just hone in on 2024, this is what it shows.
You should go into 2025 with your eyes open to the fact that fixed rates are unlikely to fall in lockstep to the OCR.
Of course, the average shift varied between mortgage lenders..
The following table tracks the net change from where we started the year, to where we finished.
| January 2024 | December 2024 | |||||
| carded rate offers | 6 mth | 1 year | 18 mth | 6 mth | 1 year | 18 mth |
| % | % | % | % | % | % | |
| Main banks | ||||||
| ANZ | 7.35 | 7.39 | 7.15 | 6.24 | 5.79 | 5.59 |
| ASB | 7.39 | 7.39 | 7.15 | 6.19 | 5.79 | 5.59 |
| BNZ | 7.39 | 7.35 | 7.15 | 5.99 | 5.79 | 5.59 |
| Kiwibank | 7.39 | 7.35 | 6.15 | 5.79 | ||
| Westpac | 7.39 | 7.39 | 7.19 | 6.19 | 5.79 | 5.69 |
| Challenger banks | ||||||
| Bank of China | 7.09 | 6.99 | 6.24 | 5.79 | 5.59 | |
| China Construction Bank | 7.19 | 7.09 | 6.89 | 6.24 | 5.79 | 5.59 |
| Cooperative Bank | 7.30 | 7.30 | 7.15 | 6.09 | 5.79 | 5.69 |
| Heartland Bank | 6.99 | 6.89 | 5.49 | 5.39 | ||
| ICBC | 7.19 | 7.05 | 6.95 | 5.99 | 5.79 | 5.59 |
| SBS Bank | 7.55 | 7.55 | 7.25 | 6.24 | 5.89 | 5.59 |
| TSB | 7.39 | 7.39 | 7.19 | 6.19 | 5.69 | 5.79 |
So then the question becomes, what will happen in 2025?
Regular readers will know that we don't predict or forecast future rate levels. But the financial markets do, by setting forward pricing. This isn't infallible, and as each circumstance changes, that pricing is adjusted (as it should be). In 2024 there were many adjustments, so what these markets priced for 2025 at the start of 2024 turned out to be quite different to what they priced at the end. No-one should be surprised. That is just how financial market pricing works, and always has done. (We have extracted the January 2024 version of the table below to show just how much these "priced in" levels have changed since the beginning of 2024.)
This is what is priced in as at December 20, 2024, for the year ahead when looking at the OCR.
We can add that to our 2024 charting. That might help you think about what could be in store for fixed mortgage rates in 2025. Stay short? or go long from here? Nobody knows the future, especially spruikers pitching their products. Your judgment will be as good as anyone's, and probably better than anyone conflicted by salesmanship. If it seems to good to be true, it almost certainly is.
Just remember, international events have a big influence on the New Zealand cost of money. The RBNZ's OCR isn't the banks' cost of money. It is the actual deposit and wholesale funding (and capital) that makes a bank's funding base, and not the OCR. The OCR has an influence on these things, especially at the very short end (less than one year funding). And even then, it is only one influence.
By going or staying short, you are gambling that your current judgment will still apply when you next need to make a mortgage rate decision. By then the wholesale money markets will have re-priced their positions. You could be facing the quite different outlook, even if the OCR has fallen more.
And as we saw above, at very low rates, the OCR has even less influence on the cost of money for banks. Fixed home loan rates will track the OCR less and less as the OCR falls.
For reference, here is what was priced in at the start of 2024.
25 Comments
Just remember, international events have a big influence on the New Zealand cost of money. The RBNZ's OCR isn't the banks' cost of money. It is the actual deposit and wholesale funding (and capital) that makes a bank's funding base, and not the OCR
Some duds need to read this a number of times..
USA have $7 trillion of debt that needs to be refinanced in 2025 alone and rates are now considerably higher.
https://x.com/StealthQE4/status/1871971880225452176
If you have NZ Mortgage debt rolling over the 1 year looks attractive, 50% at 1year and 50% at 2year if you are conservative and CANNOT afford higher rates. If you have to sell as rates rise it will be difficult as buyers purchasing ability will be collapsing.
In the USA buyers purchasing power has collapsed 10% in the last Q due to rising mortgage rates.
Looking around the world, and given the position of the USD in trade, where do you think those with the wherewithal to invest will head?
Russia? China? perhaps Europe or the Middle East? or even NZ?...I suspect the US will be fighting them off with a stick for the foreseeable.
USA have $7 trillion of debt that needs to be refinanced in 2025 alone and rates are now considerably higher.
We'll never get to see the correspondence between Powell / Fed and Yellen / Treasury. All deleted. All shredded.
Great rant from this guy. Likely on the money and I love how he refers to the necessity of QE again. It's inevitable. The moronic responses from the Aotearoa ruling elite about 'back to normal' amplified by our generally braindead media is essentially about QE being ramped up again in the US.
Bond yields hit their recent low on 18th September, but since then, 10-year government bonds have climbed to 4.6%. Rates from four months ago aren’t coming back unless yields drop to 3.6%, like they were in September. I think the bond market will continue to sell off, and we could see 7.5% fixed mortgages again in 2025.
The markets are in for a huge shock in 2025 because they continue to ignore the difference between money and credit and the fact that the BIS, in effect, threw ALL fiat currencies under the bus when they reclassified physical gold as a Tier-1 balance sheet asset on January 1, 2023.
Of course, the BIS member banks, the ones with half a brain that is, began gold stacking well before this date and along with the BRICS-bloc central banks continue to do so to this day.
The huge irony is that Western-centric governments and CBs are in essence, gold's best friend because they are destroying their economies in debt death traps along with their fiat currencies as well. As I have repeatedly mentioned on this site, all of them have already lost between 98 - 99.98% of their purchasing power.
The governments don't want to encourage gold ownership or even have this conversation, because the 5000-year-old stable purchasing power of gold, in terms of purchasing goods and services, remains essentially constant. It also reveals how badly they manage their economies and their currencies.
The glaring exception of course is China which openly encourages its citizens to invest in gold.
Countries like China and Russia have so much gold that they could hard-back their currencies tomorrow and declare a physical buy price, which would immediately revalue physical gold worldwide. This could bring down the Western fiat casino virtually overnight.
All credit to the BRICS countries for not having already used this financial nuclear equivalent weapon. They don't need to anyway because of the U$ hegemonic obsession with weaponising its reserve currency status.
Meanwhile, total debt rises exponentially along with ridiculous market-cap 'values' of corporations. As a measure of how distorted this situation has become, think in terms of the 10 largest U$ companies at a combined $17 - $18 trillion - compare that to all of the global gold production which adds up to approximately $17 trillion based on the current spot market.
So too, look at the 'value' of the 3 largest companies by market cap...
Apple @ $3.9 trillion
NVIDIA @ $3.4 trillion
Microsoft @ $3.2 trillion
These numbers are totally out of sync when all of the world's central banks combined own only $3 trillion in physical gold. This to me suggests a looming exponential revaluation of gold, given the extremely limited supply and a massive increase in demand once institutions and individuals catch up with why the well-informed central banks are all gold stacking.
In the 1920s in countries like Sweden and the U$, you could buy a house for around $5,000, or the equivalent of ~250 ounces of gold. Today they would pay that same 250-ounce price which equates to ~$650,000.
What has changed - it's not the price of gold, and not even the cost of the house, the change is in the purchasing power of the currency.
Cheers to all
Colin Maxwell
Top central bank buyers of gold in 2024 were Turkey, India, Poland. Of course, China went on a hiatus for 6 months but recently started buying gold again. Aotearoa and Aussie would never buy gold. It seems as if any two countries are happy with the monetary status quo (and how it operates) and see no hazards on the horizon, it's us.
Yes J.C. - and we can add the US to that list as well - they were the one country that continued to bet against gold after the BIS reclassification.
That for me was huge news as it signalled a splintering of the U$ away from the other global CBs in their coordinated synthetic paper manipulation of the physical gold price.
It was a major break from the 50-year pattern of gold manipulation that came about after 1971 when the Bretton Woods system self-destructed, only to be replaced with the petro-dollar in 1974.
This deal committed Saudi Arabia to trading oil exclusively in US dollars in return for American military and economic support, establishing the dollar as the global oil currency for decades, until its recent expiration.
That plan then subsequently went up in smoke in June of 2024 when the Saudis didn't renew the 50-year-old agreement.
The situation remains in a state of flux with Saudi Arabia still sitting on the fence - although the BRICS approved it as a potential member back in the 2023 Summit, and it was set to formally join in February of 2024, it announced at the last minute that it was not yet ready.
Back to the gold - yes, as the saying goes if you have a ring on one finger, then you own more gold than the RBNZ.
https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/publications/…
Australia, in November of 2024, at least had $6.8 billion of physical gold in reserve.
According to the CEIC data, these are the countries like NZ that are sitting on a big fat ZERO...
Armenia, Azerbaijan, Canada, Croatia, Israel, Ivory Coast, Kosovo, Israel, Ivory Coast, Kosovo, Montenegro, NZ, Norway, and Panama.
https://www.ceicdata.com/en/indicator/new-zealand/gold-reserves
NZ's last substantial reserves were sold off in1962 when Holyoake (National) was Prime Minister
The last of the gold was finally squandered for pennies on the pound in 1990 with Jim Bolger (yes, National too) at the helm.
And no prizes for guessing which RBNZ Governor was on watch when that decision was made - only the longest serving Governor of all time - 14 years in all, from 1988-2002
This was a period of overt neoliberal economics which would no doubt have thrilled the World Bank economists that he had worked with in 'Warshington' from 1966-1971.
Season's greetings
Colin
I can see a variety of reasons, Frank apart from common garden variety habit, but including hegemonic threats, and coercion as well.
Also, the fact that alternatives have been very limited, especially if you wanted one that was not Western-centric.
So too the Triffin Paradox* effect which means that productive real economies that rely on significant exports don't want to become the next incumbent global reserve - history proves that this status has always ended badly.
That's why I prefer the idea of a trade-only reserve currency instrument that doesn't also double as a national currency.
*The key takeaways from Investopedia...
- Robert Triffin believed the dollar could not survive as the world's reserve currency without requiring the United States to run ever-growing deficits.
- A popular reserve currency lifts its exchange rate, which hurts the currency-issuing country's exports, leading to a trade deficit.
- A country that issues a reserve currency must balance its interests with the responsibility to make monetary decisions that benefit other countries.
- Another reserve currency replacing the dollar would increase borrowing costs, which could impact the United States' ability to repay debt. (This is the reason why the U$ will fight tooth and nail to keep its reserve currency status.)
- A new international monetary system could potentially help countries maintain a reserve currency status.
Cheers
Colin
Australia, in November of 2024, at least had $6.8 billion of physical gold in reserve.
TBH, I thought the RBA had sold all their gold, but you're right, they own 80 tonnes of gold as part of official reserve assets. A far cry from 1997 when they owned 247 tonnes.
In the 2023-24 financial year, The Perth Mint held more than AUD 7.3 billion worth of precious metals for its global clients. The Perth Mint is a subsidiary of Gold Corporation, which is a statutory body wholly owned by the Government of Western Australia. The Perth Mint's operations and liabilities are backed by a guarantee from the WA Govt, enshrined in the Gold Corporation Act 1987.
Too true, Frank - as you say, that's not a lot when you look at it as a percentage of GDP.
At least it is audited though, unlike the U$ reserves (last audited in 1953), which are leased out and rehypothecated to such an extent, that they probably don't even exist as a reserve asset.
The real tragedy though is that if only Aus had kept their Commonwealth Bank of Australia going (a defacto reserve bank public utility model), they could have become by far and away the wealthiest country on the planet.
Hmmm... Eschaton - legislating for the U$ Government to buy up 5% of a global Ponzi/pyramid scheme - what could go wrong?
Imagine if the Dutch government had done the same thing during the height of the tulip mania era - a bad idea would have been made exponentially worse.
Hmmm... Eschaton - legislating for the U$ Government to buy up 5% of a global Ponzi/pyramid scheme - what could go wrong?
Idea is for the the purchase of 200,000 Bitcoins annually for five years. Add that to the existing US govt supply of 214,000 = 414,000.
New supply of BTC over next 5 years is 683,235. So the US govt will be gobbling up approx 34% of new supply.
Long-term holders sold approximately 128,000 BTC during the recent price surge to $99,000 in November. At this point, analysis indicates that long-term investors have sold almost 550,000 BTC, which represents about 4% of their total holdings.
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