May update | Mortgage rates, market shifts & why advice matters right now

The Reserve Bank left the Official Cash Rate unchanged this week at 2.25%, which was broadly expected, but the tone around the decision was far from relaxed.

The committee was clearly split. The independent members were reportedly pushing for a hike, while the Reserve Bank staff members preferred to hold. In the end, the Governor’s deciding vote broke the deadlock, keeping the OCR unchanged.

The general reading is that while the OCR was held today, the door is still very much open for future rate rises.

What does this mean for mortgage rates?

Independent economist Tony Alexander summed it up well in his latest commentary, noting that while the OCR has stayed at 2.25%, the Reserve Bank is signalling that Kiwis should expect rate hikes later this year.

Tony also made the point that the Reserve Bank may be cautious because it has a history of tightening too late, then tightening too much, before eventually easing too late as well.

Monetary policy is a blunt instrument, and at the moment the economy is not exactly firing on all cylinders. Unemployment remains above average, consumers are cautious, and the recovery is still fairly uneven.

On top of that, global uncertainty, including the impact of the Iran conflict and higher oil prices, is making forecasting even harder than usual.

As Tony put it, “none of us is likely to get our forecasts right.”

That is probably the most honest line you will hear from an economist all year.

For borrowers, that uncertainty matters. It means choosing between short-term fixed and medium-term fixed rates is not as straightforward as it was when rates were clearly falling.

Tony’s current preference is around the three-year fixed rate, largely because it gets borrowers beyond some of the near-term inflation and interest rate uncertainty. He also noted that many borrowers are still choosing two-year rates because they are a little cheaper, but that comes with some risk if rates are higher again in 2028.

As always, the “right” answer depends on your own plans. Are you likely to sell? Refinance? Restructure? Make lump-sum repayments? Do you want certainty, or are you comfortable taking a bit of rate risk?

That is exactly where advice matters.

If you are unsure whether to fix, float, split your loan, or choose a longer or shorter term, feel free to reach out. We’re always happy to talk through the options.

But it’s not all doom and gloom

There has been plenty of gloomy economic commentary lately, but it is worth remembering that New Zealand is not in the same position as it was during the GFC.

Tony Alexander also recently highlighted a few reasons why the expected economic upturn may be delayed or softened rather than cancelled.

Some of the positives include:

• Primary producers, particularly in dairy and red meat, are seeing good income growth.

• Mortgage rates are still significantly lower than they were two years ago.

• Many businesses have already spent the last few years cutting costs and restructuring, so we may not see the same sort of sharp unemployment shock that comes in a traditional downturn.

• Tourism, foreign students, infrastructure spending and net migration are all providing support in different parts of the economy.

• The housing market may not boom in the near term, especially with borrowing costs potentially drifting higher again, but turnover is likely to hold up and some regions are still showing real strength.

A market of many speeds

One of the biggest things we are seeing at the moment is that there is no single “New Zealand property market”.

Auckland is still tough in many areas. Buyers remain cautious, stock levels are still high, and developers need to be very sharp on product, pricing and location.

But other parts of the country are looking far more buoyant.

We recently helped fund a stunning Stonewood Homes house and land build in Wānaka, which completed this week. Beautiful home, happy clients, and a good reminder that the lower South Island and lakes area continue to show real depth.

We are also seeing encouraging activity in areas further south, where Colab is helping fund new-build projects through TurnKey Pro.

Southland has been bucking the national trend, with realestate.co.nz reporting last year that Southland’s average asking price had reached a record high for the second month in a row, up 8.6% year-on-year to $568,647, while the national average asking price was down 0.9% year-on-year to $855,360.

Invercargill’s top end has also been more active, with local agents noting that $1m-plus sales, once rare, have become far more common.

That does not mean every region is booming, but it does show that good projects in the right locations can still attract strong demand.

Out and about in the new-build space

Ben and I have been busy this month catching up with some great people in the new-build and development world.

We had a really good catch-up with the team at Key2, who have a huge amount of experience supporting builders, developers and buyers in the new-build space.

Key2 has a strong focus on new builds, and we would encourage builders and developers to speak with teams like theirs early in the process. In the current market, early feedback on pricing, typology and buyer demand is critical. It can make a big difference to whether a project lands well or sits on the market longer than expected.

We also had the chance to visit Fletcher Living’s stunning development at The Hill in Remuera. Beautiful location, high-quality homes, and yes, it is very hard to visit The Hill without making at least one horse joke. We will rein ourselves in 😉

We also visited Fletcher Living’s Three Kings development, which is tucked away but well worth a look. There is a mix of terrace sizes and typologies surrounding the Three Kings reserve, with really sophisticated urban design and excellent build quality.

Developments like this are a good reminder again that new-build housing is not just about adding supply. Done well, it is about creating homes and communities that actually work for the way people live.

TurnKey Pro and builder funding

We are continuing to see strong interest in TurnKey Pro, particularly from builders looking to fund spec builds, showhomes and pre-sold turnkey projects.

In a market where bank funding can still be slow or restrictive, flexible non-bank construction funding can help builders keep momentum, unlock projects and give buyers more certainty.

TurnKey Pro is designed to be cost-effective and practical, with no line fees and interest only charged on funds drawn.

If you are a builder or developer looking at your next project, or if you have land and want to understand funding options, we are always happy to have a chat.

Need help with your mortgage or project funding?

At Colab, we work with all the main banks and a wide range of non-bank lenders. We’re a full-service mortgage advice firm with a real passion for new builds, construction lending, turnkey funding and more complex property finance.