BNZ's chief economist Mike Jones is expecting floating mortgage rates to hit 7% in the first half of next year, house prices to remain flat this year and possibly increase by 3% in 2027.
"Further increases in floating mortgage rates are very likely," Jones writes in the latest BNZ Property Pulse report.
"They're currently just over 6.00% following a round of post-Reserve Bank tweaks," Jones says.
"They're likely to end the year above 6.5%, with a push through to 7.0% in the first half of 2027 on the cards based on our view of steady Official Cash Rate adjustments from here."
However, the outlook for fixed interest rate rises appears more limited.
"Fixed mortgage rates haven't budged in response to the Reserve Bank's OCR adjustment," the report notes.
"That's of no surprise given the move was expected and pre-built into market pricing.
"So far this year, fixed rates have lifted between 20 basis points (five year) and 50 basis points (two year) as a tightening cycle has been progressively factored into market expectations," says Jones.
"This will naturally limit how much further fixed rates rise as that cycle is delivered upon. We nonetheless retain an upward bias for term mortgage rates," Jones says.
On the house price front Jones says prices are expected to end this year close to where they started and assumes a 3% gain next year.
"This renewed caution likely reflects a range of factors including hostilities in the Middle East, the associated stalling in the domestic economy, a still weak labour market, election and capital gains tax uncertainty, and, probably most importantly, rising mortgage rates," he says.
Jones also notes that the strong supply pipeline of new homes could also help to keep a lid on prices.
"Additional housing demand need not translate into higher house prices if it is met by additional supply. Listings remain plentiful and inventory continues to grind higher."
"Our overriding view is that a still chugging supply response will maintain the housing market in a broad state balance," says Jones.
"We're forecasting upswings in both population growth (demand) and residential construction (supply) over the next 12 months, the latter supported by the recent burst of consenting activity."
"It's unclear which side will dominate, but our forecasts have the growth rate of the supply side holding above that of population growth," Jones adds.
BNZ is New Zealand's fourth biggest housing lender with total exposure of $66.2 billion at March 31.
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