OCR, mortgages, house prices: what’s going on?

If you’ve been following the news, you may have heard that the Reserve Bank has cut the Official Cash Rate (OCR). Again. In fact, as of October 2025, the OCR now sits at 2.5%, following a surprise 50-basis-point drop. So, what does that mean for mortgage rates, and for you as a homeowner or buyer? Let’s break it down.

What is the OCR, anyway?

The Official Cash Rate (OCR) is the interest rate the Reserve Bank of New Zealand (RBNZ) charges banks when they borrow money. This, in turn, has an impact on borrowing costs for people and businesses.

In short: if the OCR goes down, borrowing becomes cheaper for banks, and subsequetly for their customers. If it goes up, borrowing gets more expensive, for banks and for you. (We’ll come back to this shortly.)

On the other hand, a lower OCR is not great news for savers. Term deposits and savings account interest tend to fall in response, making it harder to earn returns on your cash.

Why did the RBNZ cut the OCR?

The OCR is a tool the RBNZ uses to cool down or stimulate the economy, depending on what’s happening.

When inflation is high and prices are rising too fast, lifting the OCR can help slow things down by making borrowing more expensive. On the flip side, when the economy is sluggish, the RBNZ may try to energise it by reducing the OCR.

That’s been the goal in recent months. But despite several smaller 0.25% cuts, GDP had come in lower than expected, household spending was soft, and confidence remained low. So, in October 2025, the RBNZ opted for a ‘shock treatment’ – as some economists called it – cutting the OCR by 0.5% from 3% to 2.5%.

With this bold move, the RBNZ hopes to give the economy a much-needed boost, by encouraging people and businesses to spend, invest and borrow.

How does all this affect your mortgage?

As we said before, when the OCR drops, borrowing becomes cheaper for banks – and that can translate into lower mortgage rates.

If you’re on a floating rate, that’s tied to the OCR and can change quickly when the Reserve Bank adjusts it.

If you’re on a fixed-term rate, your repayments stay the same until your term ends. But you might notice banks starting to offer lower fixed-term rates, and that’s worth keeping an eye on.

Are you considering breaking your fixed-term mortgage to lock in a better rate? Be aware that early break fees will likely apply. Get in touch with your Mortgage Link adviser to learn more.

What does it mean for house prices?

Lower mortgage rates can make it easier for people to buy, which has often supported demand in the property market.

That said, interest rates aren’t the only factor. Other forces at play include:

Lending rules (like debt-to-income ratios)

Job security

Inventory (the number of homes available for sales).

Some experts are predicting a gradual rise in property values in 2026, but likely at a modest pace. If you’re a first-home buyer, the current conditions may offer a window of opportunity.

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