October Market Update: OCR Cut to 2.5% - What this Means for You

If you’ve been waiting for some relief on interest rates, this is it. And if you're thinking about buying, the next few months may bring some windows of opportunity we haven’t seen in a while.

How Did We Get Here?

Coming into October, there were already signs that the RBNZ was likely to ease further. A few major banks (like ASB and Westpac) even got ahead of things by trimming some of their fixed mortgage rates - down to around 4.49% on one-year terms.

But this week's 50bp move is bigger than anyone expected. Markets were generally picking a 25bp cut, maybe 50bp at a stretch later in the year. So this tells us the RBNZ is moving from “wait and see” to “let’s get in front of this.”

It also comes off the back of some pretty soft economic indicators:

• Business confidence has taken a knock.

• Spending is flat.

• Job numbers are softening.

So while inflation has eased back into the target band, growth is clearly the new concern.

The Market’s Reaction: A Fast Repricing

Financial markets adjusted fast. Interest rate swaps — which help set the tone for fixed mortgage rates — fell sharply. The New Zealand dollar also dropped, which could actually bring some inflation pressure back in (via imports), but that’s a problem for another day.

Banks are now in the spotlight. Some had already started cutting rates — now they’ll be under pressure to do more. How much and how quickly they pass on the full benefit to borrowers will vary, but the direction is clear: lower.

What the RBNZ Is Thinking Now

This move wasn’t just about today - it’s about setting up the next 6–12 months. The RBNZ has made it clear: if things don’t improve, they’re prepared to cut again.

Some economists now expect the OCR to fall as low as 2.25%, possibly even 2%, if growth and inflation continue to soften.

That means we’re likely entering a period of easier monetary policy. But it doesn’t mean a return to ultra-cheap money - inflation is still a factor, and the RBNZ won’t want to overdo it.

If You Have a Mortgage: What You Need to Know

On a Floating Rate?

Good news - you’re likely to see some immediate benefit. Floating or variable rates tend to move quickest after an OCR cut. That said, banks don’t always pass on the full drop straight away, so you’ll want to keep an eye out for updates from your lender.

Due to Refix in the Next 6–12 Months?

This is a sweet spot. Rates are dropping, but may go lower still. That means:

• There’s less urgency to lock something in today.

• But you might want to start reviewing your options now.

• A “staggered” fix (some now, some later) could give you flexibility without missing the market.

Thinking About Restructuring or Refinancing?

This could be a great time to do a mortgage health check - especially if you’re on a rate that was locked in during the peak of last year’s tightening cycle.

Break fees are still a consideration, but if your fixed term is near the end or the math stacks up, you might be able to improve your monthly cashflow meaningfully.

If You’re Thinking About Buying: Why This Matters

Your Borrowing Power Just Got a Boost

Lower rates = lower repayments, or a bigger mortgage for the same repayment. That can shift what you can afford, especially if you're close to the limit of your pre-approval.

Could This Spark a Buyer Rush?

We might see more first-home buyers and investors returning to the market in the coming months - especially if rates keep dropping and confidence picks up. But remember, this will likely be a steady shift, not a sudden boom. Wages and job security are still a bit shaky for many.

Prices May Respond Gradually

Even with this rate cut, we’re not expecting runaway price growth. Demand should lift, but affordability is still tight in many areas, and sellers will be watching cautiously. It’s likely to remain a buyer-friendly market - at least for now.

Looking Ahead: What We’re Watching

Over the next 3–6 months, here’s what will shape the outlook:

• Inflation: Next CPI release will show whether cost pressures are truly easing.

• Wages & Jobs: If employment weakens, the RBNZ may cut again.

• Lender Moves: How quickly do banks adjust their fixed and variable rates?

• Housing Data: Are listings, sales volumes, and buyer activity starting to trend up?

• Global Events: Overseas rate hikes or inflation shocks could still impact us.

The Bottom Line

This OCR cut is a clear turning point — and possibly the strongest green light borrowers have seen in over a year. While we’re not in ultra-low territory, we are back to an environment where rates are moving your way, not against you.

Whether you’re refixing, refinancing, or just starting your home ownership journey, now is the time to be proactive. Review your mortgage strategy, keep in touch with your lender or adviser, and don’t assume the market will stay static.