What Adrian Orr’s departure means for Property Investors

The property investment landscape in New Zealand is always evolving, and one of the most significant developments recently is the announcement that Reserve Bank Governor Adrian Orr will be stepping down.

While many headlines have focused on what this means for monetary policy, property investors should be paying close attention to the potential shifts in lending conditions and interest rates that could follow.

A Potential Shift in Lending Rules

One of the key factors to watch is how the new leadership at the Reserve Bank might approach bank capital requirements. Under Orr’s tenure, there was a strong push to increase the amount of capital banks were required to hold. This policy was intended to strengthen financial stability, but it also had the effect of making lending more restrictive and expensive.

With Orr leaving, there is growing speculation that his successor could take a softer stance on these capital requirements, potentially allowing banks to ease up on lending restrictions. If this happens, it could mean better access to credit for investors, more competitive mortgage rates, and a general loosening of the lending environment. This would be particularly welcome news for property investors who have faced tighter borrowing conditions in recent years.

Interest Rate Outlook: Short-Term Cuts, Long-Term Uncertainty

The Official Cash Rate (OCR) remains the key driver of mortgage rates, and there is widespread expectation that we are on track for at least two more rate cuts in April and May. If inflation continues to ease and economic growth remains sluggish, there could even be room for a third cut later in the year. Lower interest rates should create more favourable conditions for investors looking to refinance or expand their portfolios.

However, it’s important to note that markets are already pricing in potential rate hikes further down the track. The reasoning behind this is simple: if rate cuts succeed in stimulating the economy, inflation could pick up again, forcing the Reserve Bank to tighten monetary policy in 2025 or beyond.

Investors need to be mindful of this dynamic - while borrowing costs might fall in the short term, they could rise again if economic conditions improve faster than expected.

Mortgage Market Dynamics

Another critical aspect influencing mortgage rates is the sheer volume of fixed-term loans rolling over. The New Zealand mortgage market is highly flow-driven, meaning that when large numbers of borrowers refix their loans at once, it can put upward pressure on longer-term rates.

Currently, over $30 billion in mortgages is being refixed each month, and if more borrowers opt for longer-term fixed rates (such as two or five years), banks may need to adjust their pricing to manage risk. For investors, this means timing is crucial.

Locking in a competitive rate now - before the majority of borrowers rush in - could be an good move.

Geopolitical and Global Uncertainty

While domestic factors like Adrian Orr’s departure and the OCR outlook are key drivers, global events also play a role in shaping interest rates. The ongoing uncertainty around US economic policy, geopolitical tensions, and shifts in global trade could all impact funding costs for banks. A global economic slowdown, for instance, might keep downward pressure on rates, while inflationary shocks could push them higher.

Final Thoughts

For me, the coming months present a crucial window of opportunity for property investors looking to refix loans. With two 25bps rate cuts highly likely in the near term, I will not rush into locking in a long-term rate just yet.

However, once we get those anticipated cuts, I will look to fix for a longer term - for some certainty. Liquidity in longer-dated fixed rates could quickly dry up if the entire residential mortgage market moves to lock in at the same time when the OCR reaches the Reserve Bank’s projected terminal rate of 3-3.25%. That means, if you leave it too late, you might find fewer competitive options available.

I also think splitting your mortgage remains a smart play. Fixing part of your loan for the short term while securing another portion for the medium to long term could help hedge against both potential further cuts and the risk of rates rising again in 2025.

Finally, don't just take the advertised rates at face value. Banks are competing for business right now, and there’s room to negotiate. If you’re in the process of refixing, push for better rates and consider talking to a mortgage broker who can help you find the most competitive deal.

That’s my take on it. The property market is constantly shifting, and staying ahead of these trends is key to making the most of your investments. Keep an eye on Reserve Bank moves, market sentiment, and global economic shifts - it will all play into where rates head next.

Oliver Pearson

Manager and Property Investor for 20+ years

Oliver Pearson

Manager and Property Investor for 20+ years

Oliver Pearson began investing in property aged 21 and has since bought, developed and sold real estate in the UK, USA, South East Asia and New Zealand. After a career in banking he is now on the management team at Waikato Real Estate and has contributed to property articles for NZ Herald, Stuff and Property Investor Magazine.

Based in Raglan, Oliver's passions extend beyond property to surfing, hydrofoiling, and providing a taxi service for his children.