In recent weeks, many borrowers have asked the same question:

“The OCR has been cut, so why are NZ mortgage rates not falling?

And why did Westpac increase its 2–5 year fixed rates instead?”

At first glance, this seems contradictory. Market forecasts still mention small potential OCR reductions early next year, yet banks—especially Westpac—are lifting medium-term pricing.

OCR cuts do not directly drive fixed mortgage rates.

This article explains why fixed rates are moving in the opposite direction, what rising swap rates signal about the interest rate outlook, and how borrowers should think about their mortgage strategy.

1. OCR Cuts Do Not Automatically Lower NZ Mortgage Rates

A common assumption is:

OCR cut → Bank funding cost drops → Mortgage rates fall

This assumption mainly applies to floating rates.

fixed mortgage rates—especially 2–5 year mortgage rates—are priced based on swap rates rather than the OCR.

Two key developments explain recent pricing behaviour.

1.1 Bank margins have tightened

Cashback competition and aggressive market pricing have compressed lender margins, leaving less room for rate reductions.

1.2 Swap rates NZ have increased significantly

Since October, swap rates across all fixed terms have risen by approximately 0.50% according to market data.

When swap rates rise, bank funding costs rise.

This is why Westpac increased its 2–5 year fixed rates even after an OCR cut.

The movement reflects funding conditions—not OCR policy.

2. Why Are Swap Rates NZ Rising?

Swap rates move based on market expectations of future interest rates.

When swap rates rise despite an OCR cut, the market is signalling that the rate-cutting cycle may be nearing its end.

Two main forces are driving this shift.

2.1 The New Zealand economy is performing stronger than expected

Recent economic indicators show:

• Retail spending has rebounded

• Business confidence is at an 11-year high

• Over half of NZ businesses plan to raise prices

• Construction activity is recovering

A stronger economy typically raises inflationary pressure.

This reduces the likelihood of further rapid OCR cuts, pushing swap rates—and therefore fixed rates—higher.

2.2 The Reserve Bank’s new stance: No preset path

The new RBNZ Governor has made it clear that:

• There is no predetermined cycle of OCR cuts

• All decisions depend on incoming data

• The Bank will not provide forward guidance

Without forward guidance, markets cannot confidently price in future OCR cuts.

As a result:

• Expectations of lower future rates decrease

• Swap rates rise

• Banks increase 2–5 year mortgage rates

This explains why OCR cuts and rising fixed rates can occur simultaneously.

3. How Borrowers Should Approach Their Fixing Strategy

Given the current interest rate outlook, predicting rate movements is extremely uncertain.

Even economists and banks acknowledge that volatility remains high.

A more reliable approach is to base your fixing decision on your financial situation rather than market speculation.

3.1 When stability is the top priority

A longer fixed term, such as 18 months to 2 years, may be appropriate if:

• Your budget is tight

• You have significant recurring expenses

• You prefer predictable repayments

Stability protects against sudden increases in mortgage rates.

3.2 When you have flexibility and strong cash flow

A 1-year fixed term remains strategically beneficial because:

• You can access future rate reductions sooner

• You avoid long commitments

• You can adjust your structure when market conditions evolve

This approach suits households with strong financial buffers or emergency funds.

4. Loan Structure Matters More Than Small Rate Differences

loan structure design often produces greater long-term savings.

Key structural considerations include:

• Whether to use offset or revolving credit facilities for cash-flow resilience

• Whether to maintain your current repayment level to reduce principal faster

• Whether to extend or exit interest-only terms

• Whether splitting across different fixed terms can reduce risk

Structure affects:

• Cash flow

• Long-term interest costs

• Your resilience in volatile markets

Even a borrower with a favourable rate may pay more overall if the structure is inefficient.

Final Thoughts

Every borrower’s situation is unique.

With swap rates rising and banks adjusting medium-term pricing, this is a critical time to reassess your mortgage strategy.

If your refix is approaching or you are unsure how to position your loan in the current environment, we can help review:

• Cash-flow requirements

• Risk tolerance

• Future plans

• Structural optimisation opportunities

We can provide a tailored analysis and two strategic options to support confident, well-informed decision making.

If you would like personalised guidance on your mortgage structure or upcoming refix, contact us and we can prepare a tailored strategy for your situation.