While some New Zealand interest rate strategists aren’t quite as aggressive in forecasting the Reserve Bank’s OCR to hit 2%, there’s a common thread emerging: many see the possibility of rates falling below 2.5%. In practical terms, this suggests a likely 50 basis point cut before Christmas, bringing the OCR down to 2.5%, with potential for even lower rates if conditions change.

What’s particularly interesting is what market pricing is signalling right now. Current expectations have the OCR sitting around 2.3% by the time of the RBNZ’s next meeting. If these projections hold, there’s a strong chance we could see a cut through 2.5%, possibly reaching 2.25%. Since Adrian Orr’s departure, the RBNZ has shown a reluctance to contradict market signals, making these projections increasingly plausible.

For property investors, this has meaningful implications. As our Investment Adviser Ryan Orr explains, “from a property investment point of view, rates below 4.5% means at current market pricing your rental income is covering your borrowing costs, your rates and starting to cover your insurance costs as well. You don’t get something for nothing in this world, and to me the obvious pressure then moves onto prices and pushes these up.”

When mortgage rates fall low enough, rental incomes begin to absorb most of your fixed costs. That dynamic puts upward pressure on property values.

“It’s definitely the time for those who have been on the fence about when is the best time to invest, or those who are worried about the cost of topping up a rental property – it looks like the properties we are showing investors at the moment won’t be needing much of a top up at all come settlement next year”, Ryan Orr shares.

Adding to this picture is the appointment of Dr Anna Breman as the new RBNZ Governor from December. With her background as Deputy Governor of Sweden’s Riksbank, Breman brings deep international experience and a reputation for credibility and stability. While she is unlikely to change the immediate trajectory of rates, her leadership is expected to reinforce market confidence in the RBNZ’s direction, an important factor as investors weigh their next moves.

In other words, if mortgage rates do dip back below 4.5%, investors could find themselves in a position where rental income comfortably covers key outgoings, making their investment close to cashflow neutral - something that hasn’t been seen in the market for quite some time. With the RBNZ unlikely to push back against market pricing, the window of opportunity for buyers could arrive sooner than many expect.

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