Interest rates are the largest driver of house prices. Falling interest rates will support the market and we expect steady gains in house prices from here.Jarrod Kerr, Kiwibank Chief Economist
Rate cuts to start the year
- The Reserve Bank of New Zealand - Te PÅ«tea Matua (RBNZ) started 2025 by lowering the Official Cash Rate (OCR) to 3.75% in February, a 50 basis points cut.
- This continues the OCR reductions that began in the last half of last year. These cuts aim to support the economy, boost confidence, and stimulate growth in the housing market.
Our 2025 housing market forecast
- The Aotearoa New Zealand housing market is still struggling. House prices have tracked sideways since May 2023, following an 18% peak-to-trough price decline.
- Our Chief Economist Jarrod Kerr forecasts that the RBNZ will return to a neutral cash rate, of about 3%. "Interest rates are the largest driver of house prices. Falling interest rates will support the market and we expect steady gains in house prices from here," he says.
- However, we still have a chronic shortage of housing in Aotearoa. We need to entice investors back so that developers will follow. Recent changes to housing policy should bring them back
- When debt-to-income (DTI) restrictions came into effect on 1 July 2024 loan-to-value ratios (LVR) relaxed. They are complementary. DTI restrictions are unlikely to have a meaningful impact as they're introduced, although some borrowers may find it harder to get the loan size they need.
- And as investors no longer need to worry as much about the Brightline test or interest deductibility, we should see investors return to the market. Read more about the Brightline test and investing in property.
- Alongside further interest rate reductions and tweaks to investor property policy, we expect the housing market to bounce back in 2025 with house prices increasing 5–7% over the year.
For more detailed economic insight and commentary from our Economists, see our Economic Insights Hub.
What it could mean for you
Jarrod and Mary Jo offer their Insights on what their housing market forecast could mean for Kiwi at different stages of their house-buying journeys.
If you're saving up your deposit
- Time it right for you
No matter what the market is doing, it’s less about the right time in the market and more about the right time for you. "The right time to enter the market is when you’ve got your deposit," says Jarrod. "In the meantime, keep your head down, keep saving and stay focused on your goal."
If you're buying your first home this year
- Do your research
Confessed finance nerds Mary Jo and Jarrod love a good research session, and they strongly recommend that you do your research, too. Investing time and effort into understanding your options will pay off in the long run. “Buying a house is the largest purchase most people will make, so it's important to get out there and look at different areas to see what you can afford," Mary Jo says.
- Budget using current rates
Despite the forecasted potential rate decrease, Mary Jo suggests that Kiwi play it cautiously and base their repayment budget on current rates. “Keep any rate cuts in the back of your mind, but don't base your budget around them,' she says. "That way, any future cuts can be a pleasant bonus later in the year."
If you already have a home loan
- Split it up
Splitting up your mortgage into different, staggered fixed-term durations can offer you flexibility. "Consider a mix of fixed-term durations including 6 months, 1 year, 2 years and 5 years," he says. See our different fixed-term options.
Jarrod explains that the idea is to always have a portion of the mortgage rolling off so that your fixed terms don't all expire at the same time. This approach helps to avoid the risk of having to refix all your loans on whatever market rates are at the time, and it could allow you to take advantage of lower rates that could be in the market.
- Pay it off faster
If you can build up some savings, then another benefit of splitting your mortgage into different fixed-term durations is the opportunity to pay off your mortgage more quickly. Once a fixed term comes to an end, you have the option to pay down more on that portion of your mortgage using your savings lump sum.
More economic insights to keep you in the know
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This page provides general information and isn't intended as regulated financial advice. To review your specific situation and financial requirements please talk to one of our Kiwibank Representatives or your Financial Adviser.