Private property issue #96 - Interest rates going up?

Last Tuesday, I recorded a podcast with my latest interest rate predictions.

This week, I tore them up.

The market (and the data) has changed. Here are my updated interest rate predictions –

ANZ predicts the OCR will go up

ANZ – our largest bank – now predicts that the OCR will increase 2 more times.

That would take the OCR to 6%.

But not everyone agrees.

BNZ, ASB, Kiwibank and Tony Alexander all think the OCR has peaked.

According to them, the next time the OCR changes, it will go down.

In some ways, it doesn’t matter who is right.

The wholesale interest rates have already climbed.

Remember, the wholesale rate (swap rate) is what it costs the bank to borrow money. They then lend it to you and me for our mortgages.

And that rate shot up over the last 10 days. Take a look 👇

What does it mean?

If wholesale rates go down, it’s cheaper for the banks to lend to us. So, they usually lower their interest rates.

If the wholesale rates go up, they put their rates up too.

That’s what usually happens.

Will interest rates go up?

Thankfully, interest rates probably won’t go up this time.

It all comes down to what I discussed in last week’s Private Property.

The banks have been discounting their interest rates in private.

Although most banks will say their 1-year rate is 7.35%, once you get a mortgage, you can negotiate this down.

On average, our mortgage brokers have been negotiating 0.43% off the 1-year rate. That's a savings of $41 a week on a $500,000 mortgage.

These discounts were available because the wholesale rates fell in December and January.

But the banks didn’t lower their interest rates.

They gave discounts instead. That decision now looks smart.

Because the banks likely won’t change the advertised rates despite their higher costs.

There is enough fat in there for banks to maintain their margins. 

There may be some small movements. But I’m not predicting big changes.

Those big discounts, though, might not be available.

So, where will interest rates go next?

Interest rate forecasts

When Ed and I look into our crystal ball, here’s what we see.

Inflation is falling.

Every bank (except one) thinks inflation will be back within the Reserve Bank’s target band by the end of the year.

There will be a few bumps in the road. This week shows that. But the downward trend is clear.

That’s why interest rates will come down.

It may be slower than the numbers released in my recent podcast. But they will come down over time.

The 1-year rate is currently 7.3% (ish).

My best guess is that this will be under 7% but over 6.5% in 12 months.

If I had to guess, I’d say 6.7%.

After that, we’ll likely see those big falls the markets were expecting only a week ago.

Let’s call it 5.5% in February 2026 and then a gradual decline to our long-term assumption of 4.5%.

But a big disclaimer.

This is my best guesstimate. I expect these to be wrong.

When new data comes out, I update my forecasts.

That’s why last week’s forecasts are in the bin.