By the time you read this the Reserve Bank should have provided some much-needed Christmas cheer to retailers and mortgage holders in general by providing a cut with the final cash rate review of the year on November 27.

At the time of writing, it was just a question of whether it would be0.5 per cent (most probable), 0.75 per cent (next most likely) or 0.25 per cent (least likely).

With there being a sizeable gap between this review and the first one next year on February 19, there is a chance the Reserve Bank will decide to go large to provide some respite, with many businesses already on their knees.

Trump Factor

A large factor which may make the Reserve Bank cautious about dropping by 75 basis points is the US election result, with Donald Trump’s plans around tariffs likely to be inflationary.

Either way borrowers are likely to benefit by continuing to fix for short terms.

Most will probably consider locking for either six or 12 months, with the expectation of rates continuing to drop across 2025.

One point of interest is that although the official inflation measure, the Consumer Price Index, suggests inflation is getting under control, the general mood is not as optimistic. The recent Household Expectations survey, which the Reserve Bank runs quarterly, sees inflation in a year’s time at 4.1 per cent, or almost double the 2.2 per cent current number.

Jobs Market

The survey also digs into people’s perception of being able to find a new job, and this continues to trend negatively with only 42.3 per cent of respondents believing they would find a new job in the next three months if they lost their current employment.

The interest rate drops, and expectation of further decreases, is already fueling far greater demand than seen in the last couple of years for mortgages, which can be seen clearly with most banks having to put a halt on preapprovals to cope with the number of applications.

After having an easier time of things, first home buyers will go into next year finding they will be competing against more investors who are coming back into the market as the lower interest rates and tax changes make property appealing again.

I expect to see the banks competing hard next year for market share, which should hopefully drive some good rate offers.

krispedersen.co.nz