NZ Mortgage Interest Rates Prediction 2023 (Historical Archive)

Every January we dust off the crystal ball and have a crack at predicting where mortgage interest rates will end up over the coming year. Rate forecasting is a humbling exercise - the last few years proved that beyond any doubt - but it is still worth doing because it forces a disciplined look at the economic fundamentals driving borrowing costs. Here is what we were thinking at the start of 2023, and how the year actually played out.

Looking Back: What Happened to Rates in 2022

The year 2022 was genuinely painful for borrowers. After Covid-era emergency settings had pushed rates to historic lows, the RBNZ began tightening aggressively and mortgage rates followed. One-year fixed rates started the year around 3.5% and had climbed past 5.2% by mid-year. Two-year rates pushed even higher, reaching roughly 6.1% by late 2022. The speed of the increase caught many borrowers off guard, particularly those who had fixed for short terms at sub-3% rates in 2020 and 2021 and were now facing refixes at nearly double the cost.

One unusual feature of 2022 was how flat the yield curve became. Normally you would expect to pay a decent premium for fixing longer-term, but the spread between 1-year and 5-year rates was remarkably thin. This reflected the market's expectation that rates would peak and then come back down - locking in a 5-year rate was not much more expensive than a 1-year because the market was already pricing in future cuts. With overall mortgage lending volumes well down from the boom years, the banks competed aggressively for refinance business, offering cash contributions and rate specials to attract borrowers switching lenders.

The 2022 Property Market Correction

House prices had their most significant correction in a generation during 2022. The national median dropped 7.5%, falling from $892,000 in late 2021 to $825,000 by October 2022. Auckland took a harder hit with a 12.7% decline, and Wellington was the worst-affected major centre with a 17.2% fall from its $1,000,000 peak down to $828,000. These were substantial declines in dollar terms, though they still only unwound a portion of the extraordinary gains made during 2020 and 2021. For anyone who had bought at the peak with minimal deposit, the correction was stressful, but widespread forced sales did not materialise thanks to relatively low unemployment and banks generally being willing to work with borrowers in difficulty.

Our 2023 Rate Prediction

At the start of 2023, our view was that rates had further to climb. Six percent, while eye-watering compared to the Covid lows, was still not high by historical standards - plenty of borrowers in the 2000s and 2010s had paid more than that. The RBNZ was still firmly focused on bringing inflation back within its 1-3% target band, and the OCR had more room to rise. Our specific prediction was that the most common 1-year discounted fixed rate would reach 6.8% by December 2023.

In hindsight, this turned out to be a pretty decent call. One-year rates did reach the high 6% range during 2023, and the OCR peaked at 5.50% in May 2023 where it stayed until the RBNZ finally began easing in August 2024. The period from mid-2023 through to mid-2024 represented the peak of the tightening cycle, and borrowers who fixed for longer terms in that window ended up locking in rates that now look expensive compared to where things have moved since.

First Home Buyers in 2023

We also predicted that mortgage lending would become somewhat easier for first home buyers in 2023 compared to the previous year. The Credit Contracts and Consumer Finance Act (CCCFA) changes in late 2021 had caused chaos in bank lending departments, with overly cautious interpretation of the new rules leading to ridiculous loan declines. By early 2023, the banks had largely adapted their processes, the government had made targeted amendments to the legislation, and the practical experience of working under the new regime had smoothed out many of the worst pain points. Combined with lower house prices giving buyers more options within their borrowing capacity, 2023 was a somewhat easier environment for first home buyers than 2022 had been - though "easier" is relative when rates are near 7%.

What We Learned

The 2022-2023 rate cycle reinforced several lessons that remain relevant today. Rate movements can be swift and dramatic - the jump from sub-3% to nearly 7% happened in roughly 18 months. Fixing strategies matter enormously, and there is no consistently "right" answer about short versus long-term fixes. And property markets can correct meaningfully even without a recession, when interest rates move fast enough to change affordability calculations. For anyone wanting to see where we think rates are headed now, check out our 2026 interest rate outlook.