Mortgage affordability

IBISWorld forecasts the proportion of household monthly earnings remaining after a mortgage repayment to rise by 4.0 percentage points in 2025-26 to 61.9%. After several years of surging interest rates, the RBNZ has repeatedly lowered the Official Cash Rate (OCR). This has eased pressure on households with mortgage repayments and boosted the amount of money left over after a mortgage repayment. This trend has been gradual, as around 90% of mortgage lending involved fixed rates, with New Zealanders only recently being able to reprice to lower rates.

In response to an overheating property market and rising inflation following the reopening of the economy after pandemic restrictions, the RBNZ started tightening monetary policy and lifting the OCR from October 2021. The RBNZ then engaged in one of its fastest hiking cycles in history, lifting the OCR a cumulative 525 basis points between October 2021 and May 2023. As a result, mortgage affordability plummeted in 2022-23 and 2023-24. The RBNZ responded swiftly once this inflation stifling strategy took hold. The RBNZ cut the OCR by 300 basis points from its 2023 height to support economic activity, hitting 250 in October 2025. Low borrowing costs have supported mortgage repayments, however increased costs in other domains have kept households under budgetary pressure.

Another key driver of falling mortgage affordability over the past five years is the significant growth in residential property prices. A housing shortage in New Zealand has contributed to the significant rise in property prices and led to larger mortgages being taken out by households over the past five years. Though housing price growth eased somewhat in 2023-24, prices are expected to track upwards once again in the current year. Residential housing price growth has outpaced household income growth over the period, contributing to the overall decline in mortgage affordability. Overall, IBISWorld forecasts the proportion of monthly household earnings remaining after a mortgage repayment to fall at an average annual rate of 1.70 percentage points over the five years through 2025-26.