Why are NZ banks slow to cut mortgage rates?

Despite the Reserve Bank of New Zealand lowering the Official Cash Rate, most banks have only reduced floating mortgage rates by 0.15% to 0.20%. This is partly due to weak competitive pressure and a focus on maintaining profit margins.

Are mortgage approval delays common in New Zealand?

Yes. Approval times of 10–15 working days have become common, creating challenges for buyers needing quick finance confirmation. Delays are largely due to outdated banking systems and high application volumes.

How can Staircase help with mortgage delays and rate shopping?

Staircase mortgage advisors help you understand market shifts, secure pre-approvals quickly, and develop a strategy to take advantage of future rate cuts and lender competition.

Banks Keep Margins Fat While Mortgage Market Starves for Action

Q: Is the NZ mortgage market anti-competitive?

A 2024 Commerce Commission study found that the big four Australian-owned banks face limited competition, leading to slower rate cuts and higher margins. Reforms like open banking are being implemented to improve competitiveness.

Staircase Financial
Jul 2
3 min read

Updated: Jul 2

A New Zealand homeowner facing high mortgage rates

As wholesale rates ease and the property market shows early signs of recovery, New Zealand’s major banks are under scrutiny for failing to respond meaningfully on three key fronts: mortgage pricing, lending margins, and loan approval times.

Why NZ Banks Are Slow to Cut Mortgage Rates Despite OCR Drops

In the latest ‘Mortgage War’ Banks efforts to compete on price seems to have waned for now. They appear to have resorted to using ‘peashooters’ against each other evidenced by their weak efforts to trump the latest rate drop by the other Banks. We do expect the current mortgage war will heat up as we enter the busy Spring season for the property market when there will be much more new business for the Banks to compete for.

Despite the Reserve Bank of New Zealand (RBNZ) cutting the Official Cash Rate (OCR) to 3.25% in May 2025, most banks trimmed their floating mortgage rates by only 0.15% to 0.20%, and fixed rate reductions were even smaller. This slow response has raised concerns for borrowers seeking competitive mortgage options.

By contrast, banks in the UK and Australia have moved more aggressively in passing on central bank rate cuts. For example, in the UK, lenders like Nationwide have reduced fixed mortgage rates by up to 0.30%. Australian banks typically pass on central bank rate movements in full, often within days, due to greater political and consumer pressure.

NZ Bank Margins Remain High Amid Weak Mortgage Competition

Economist Shamubeel Eaqub has highlighted the disparity between wholesale funding costs and consumer mortgage rates in NZ, noting that banks are maintaining large lending margins. His comments echo a broader sentiment: NZ banks are making substantial profits by not fully passing on rate reductions to consumers.

The 2024 Commerce Commission study confirmed that the big four Australian-owned banks in New Zealand face limited pressure to compete on mortgage pricing or service. With demand for new home loans still soft, banks have little motivation to lower rates or attract new borrowers.

Instead, lenders appear focused on extracting maximum margin from their existing mortgage books. Bank net interest margins are near historic highs. Consumer watchdogs have accused the sector of "profiteering", although banks reject that label. ANZ, for example, claims it has passed on over 90% of rate cuts to date.

In response to these issues, Finance Minister Nicola Willis has initiated a series of reforms aimed at increasing competition in the banking sector. These include strengthening state-owned Kiwibank, implementing open banking by 2026, and asking the RBNZ to support greater industry competitiveness.

RBNZ Governor Christian Hawkesby has also remarked that mortgage rates in NZ "should" be falling and confirmed that capital and data-sharing rules are under review.

Mortgage Approval Delays in NZ: What’s Causing the Backlog?

While pricing gets headlines, banks are also falling short on responsiveness. Mortgage advisers report approval times stretching to an unacceptable 10–15 working days, a major issue in a market where buyers often need finance confirmed within a week.

"Clients are putting down finance clauses of 15 working days, and even then we’re pushing it” said one advisor

According to the Finance and Mortgage Advisers Association (FAMNZ), outdated banking systems are contributing to these delays. In some cases, clients are submitting loan applications to multiple banks just to ensure one is processed in time. The situation worsened in late 2024 when ASB temporarily suspended mortgage pre-approvals for non-customers to reduce application backlogs.

These processing bottlenecks are not only inconveniencing buyers but also causing some property purchases to fall through due to missed finance deadlines. FAMNZ has described the issue as "anti-competitive," further highlighting the need for systemic reform.

Is the NZ Mortgage Market Anti-Competitive? What Borrowers Should Know

Slow mortgage rate cuts, high margins, and significant home loan approval delays in NZ point to a banking sector with limited competitive dynamics. While banks defend their practices as cautious and risk-aware, many borrowers are paying more and waiting longer than necessary.

The RBNZ has emphasized that New Zealand’s banks remain well-capitalised and capable of lending. However, unless improvements in service and pricing emerge soon, regulatory intervention could be imminent.

As the property market picks up and further OCR reductions are expected, the spotlight remains firmly on bank behaviours. Public sentiment and political pressure for accountability are mounting.

Get Ahead of the Curve with Staircase

With mortgage market changes on the horizon, now is a smart time to consult with a Staircase mortgage advisor. We help clients:

Understand current market conditions and how they affect your borrowing capacity.
Navigate the pre-approval process efficiently, even amidst current delays.
Develop a strategic plan to capitalize on potential rate cuts and increased lender competition.

Don't wait for the market to shift. Be prepared to act swiftly when opportunities arise. Contact a Staircase mortgage advisor today to ensure you're ready for the upcoming changes in the mortgage landscape.