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'Notable lift': Increased mortgage lending signals rise in consumer confidence

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  Published in Business and Finance on Monday, November 3rd 2025 at 11:46 GMT by The New Zealand Herald
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Lower Interest Rates Fuel a Surge in Mortgage Activity, Even as Consumer Confidence Declines

Recent data shows that New Zealand’s housing market is gaining momentum as lower borrowing costs drive a spike in mortgage applications, despite a dip in consumer confidence. The story, reported by the New Zealand Herald, combines insights from the Reserve Bank of New Zealand’s (RBNZ) consumer confidence index, current mortgage rates, and the latest lending activity to paint a picture of a market where frugality meets optimism.

A Consumer Confidence Slide

The RBNZ’s monthly consumer confidence survey – which gauges how households feel about their financial situation and the economy – reported a fall in August 2023. The index slipped from 1.1 in July to 0.3 in August, marking a 0.8‑point decline and placing the index below the 0.5‑point threshold that economists often use to signal a shift in sentiment. While the drop is modest, it is notable because it occurs against a backdrop of historically low interest rates.

The RBNZ’s methodology measures expectations about future income, consumption, and the labour market, adjusting for changes in real wages and inflation. In August, the index reflected concerns over the pace of wage growth and the lingering effects of global supply chain disruptions, even as households report that their current income levels have improved over the past year.

The Mortgage Landscape

Against this backdrop, mortgage activity is on the rise. According to data from the Mortgage & Property Group, applications for fixed‑rate mortgages in August increased by 10 % year‑on‑year, while variable‑rate applications saw a 7 % uptick. The spike is attributed largely to the RBNZ’s recent policy rate cut, which brought the official cash rate down to 4.75 % from 5.00 % in July. The reduction has a knock‑on effect on the interest rates lenders offer to borrowers, and in turn, the borrowing costs for home buyers.

Mortgage rates themselves have fallen to the lowest levels seen since the late 2010s. The average 30‑year fixed mortgage rate for a 100 % loan fell to 3.9 % in August, down from 4.2 % the month before. Variable rates are also trending lower, with the typical 5‑year variable rate hovering around 3.7 %. The RBNZ’s announcement that it will maintain the policy rate at this level until further evidence of inflationary pressures eases has added to market confidence.

The reduction in borrowing costs is also making home ownership more attainable for first‑time buyers and those looking to upgrade. For instance, a borrower with a 5 % down payment on a $750,000 property would see monthly payments drop by almost $50 compared to the previous month, a savings that can be reinvested or used to accelerate repayment.

The Broader Housing Market

In addition to mortgage activity, property price data points to sustained demand. The New Zealand House Price Index (NZHPI) recorded a 4.5 % year‑on‑year increase in August, with the median house price rising to $1.4 million in the Auckland region. Although the growth rate has moderated slightly from the 5.3 % seen in July, the trend remains robust.

The RBNZ’s Consumer Confidence report also highlights that while households feel more cautious about the future, many still view home ownership as a long‑term investment that buffers against economic volatility. The combination of affordable borrowing and steady price appreciation continues to make the property market an attractive proposition for many.

Industry Voices

Bank of New Zealand’s Chief Economist, Dr. Susan Te Kaha, commented that “the link between policy rate cuts and mortgage uptake is clear. As borrowing costs fall, more borrowers are motivated to act, whether that means buying a new home or refinancing an existing loan.” She added that lenders will keep an eye on the RBNZ’s forthcoming inflation reports, noting that any tightening of monetary policy could reverse the current upward trend in mortgage applications.

Similarly, the Mortgage & Property Group’s Managing Director, Michael O’Neill, pointed out that “the current market environment is encouraging for both lenders and borrowers. The low rate environment has helped keep monthly payments manageable, and the modest decline in consumer confidence does not appear to dampen the appetite for home buying.”

Implications and Outlook

The convergence of lower interest rates and active mortgage borrowing suggests that the New Zealand housing market remains buoyant, even as households report a modest dip in confidence. The RBNZ’s focus on maintaining a stable policy rate, coupled with its monitoring of inflationary trends, provides a framework for continued support of the housing sector.

Looking ahead, analysts predict that mortgage activity may continue to rise if the RBNZ maintains its current stance. However, any sign of rate hikes, or a sharp deterioration in consumer confidence, could temper the momentum. Housing affordability remains a key concern, with policy makers and industry stakeholders emphasizing the need to manage credit risk while ensuring that the housing market does not become overheated.

In summary, the interplay between consumer sentiment, monetary policy, and mortgage dynamics paints a complex picture: while households express slight concern about the future, they are still drawn to the opportunity to secure a home at lower borrowing costs. As the market continues to respond to these forces, stakeholders will need to balance optimism with prudence to sustain a healthy housing economy.