Disclaimer: I’m a cat dad. No cats were harmed in the writing of this article. The dead cat in question is purely metaphorical, and my own feline bosses are very much alive and judging me as I type this.
Right, let’s cut to the chase and talk about what happened to interest rates at the end of last year, because I know a lot of people are confused, and understandably so.
Here’s a recap: For about eighteen months, we watched the OCR fall and interest rates followed suit, pretty much point for point. It was predictable. Comforting, even, if you were refinancing. Then December rolled around, and something weird happened. The OCR went down again, but retail interest rates lifted back up a bit. A lot of my clients were ringing me, asking what the hell was going on. They were right, it did seem completely out of step with an established pattern.
The technical reason (and the gruesome analogy)
So, when the Reserve Bank announced that it saw this as the end of the reductions. International markets heard that and thought, “Right, so things are probably going to go up from here then.” And they did.
To explain this to people, I’ve been using an analogy that’s admittedly dark but effective. What happens when you throw a cat off a high building? The answer is that it falls and falls and falls, then it goes splat and bounces. That’s exactly what happened to interest rates in December. They fell for eighteen months, hit the floor, and bounced.
The thing is, the cat won’t get up again until someone comes along and picks it up. Who might that be? It could be another central bank decision, another war, Trump doing something unpredictable, or our economy simply improving and someone coming along to clean up the dead cat and lift it up.
What happens next
The interest rate picture for 2026, I reckon, is flat at best with an eventual and gradual lift later in the year. Will rates go down some more – never say never but I just don’t see it.
So yes, this is a bit of crystal ball gazing, but various economic commentators are saying the same thing.
Have we reached the bottom?
Yeah – I think the bottom of this cycle occurred in November last year so it’s well behind us now.
Unless you’ve got specific reasons for fixing short (for example, you’re planning to sell or you’re expecting a chunk of cash to come through) then most people should be looking at mid-length terms.
And yes, you should still split. Now is absolutely the right time to split.
Over the last couple of years, as rates were falling rapidly, it mattered less whether you split or not. What you were trying to do was get all of your mortgage to come off at its fixed rate when the bottom arrived. If you’ve been successful doing that by going short, you should now flip that around and go long.
Stop waiting!
Basically, if you’ve been waiting to see if banks are going to keep reducing their fixed rates, then wait no longer. The interest rate cat has bounced. It’s not getting back up on its own. And when something eventually does pick it up – whether that’s economic recovery, international pressures, or any number of other factors – it’s going to move in the other direction.
Honestly? The window for catching rock-bottom rates is closing. Not because rates are shooting up tomorrow, but because we’re at the bottom of the cycle now. This is as good as it gets. The opportunity isn’t in waiting for rates to fall further. The opportunity is in locking in the good rates available now for a decent stretch of time.
Contact me to have a chat about your situation, and I’ll give you an honest appraisal of what you can borrow and how to make the most of this opportunity.