Across the ditch, economists say New Zealanders can now see "the light at the end of the tunnel" of high interest rates after the country's central bank announced the first cut in more than four years and signalled more were on the way.

As Australian mortgage holders wait for similar news, the Reserve Bank of New Zealand (RBNZ) has followed counterparts in Canada and the United Kingdom and announced the cash rate had reached its peak in the cycle at its last meeting.

"The first cut is the deepest, to quote Rod Stewart," ANZ chief economist in New Zealand Sharon Zollner said.

"It is a change of regime. The question is no longer: will rates fall? Or could they even go higher? The question now is: how fast are rates going to fall?"

The RBNZ announced a 25 basis points cut a little earlier than forecasted and so far, sentiment surveys show it has brought change.

"In both the business survey and the consumer survey, there was a very strong theme of more optimism about the future, undoubtedly related to the fact that interest rates — retail and wholesale — have fallen quite a lot after the last six weeks," Ms Zollner said.

"But of course, there's a reason that rates have fallen, and that is that the current economic situation is looking weaker than anticipated, and so that's what's given the reserve bank confidence to cut early."

The 0.25 per cent drop brings the official cash rate in New Zealand to 5.25 per cent, with the RBNZ flagging it is now forecasted to be below 4.5 per cent by the middle of next year — a level Australia's cash rate has not reached in this cycle.

"We got punished a lot more," managing director of New Zealand credit bureau Centrix Keith McLaughlin said.

Centrix data out today shows mortgage delinquencies in New Zealand are still up 12 per cent on last year, but the trajectory has changed.

"They're trending down. We've finished a period of plateauing and now we're starting to see arrears fall," Mr McLaughlin said.

Impact on a flat housing market

The housing market in New Zealand has been faring very differently to Australia's over the past year.

While Core Logic data shows that at a national level Australia's house prices climbed continuously for the past 19 months, home owners in New Zealand have seen values fall.

Despite aggressive interest rate rises, home prices in New Zealand are just 19 per cent below their November 2021 peak, less than half their over 40 per cent surge during the COVID-19 pandemic.

With the cash rate cut, Kiwi house prices are now forecast to change direction and rise 6 per cent next year, according to a Reuters poll of property strategists.

"There has been downward pressure on prices in most parts of the country this year and sales volumes have been lower than average as the cost of living, concerns around job security and interest rates challenge many people in New Zealand," Kelvin Davidson from Core Logic New Zealand said.

"However, it seems this sentiment is beginning to change. The slight decline in interest rates in July, and a belief that there are more to come, appears to have encouraged buyer activity, as reflected in the increase in sales."

Ms Zollner said there was another green shoot starting to unfurl in the country's real estate "super city".

"The most leading indicator is actually the auction clearance rate for the biggest real estate company in Auckland. What we have seen over the last three weeks of data is that it has jumped to a higher level. It's not high, but there has definitely been a response to the lower interest rate," she said.

Ms Zollner said the shift was not just about the 0.25 per cent drop, but the "much, much bigger change in the whole path forward".

"If you were on the fence for buying an investment property or your first home, for example, then that's more than just the 25 basis point cut. That's quite a big change."

First home buyers have been 'making hay' 

According to the data, it's first home buyers in New Zealand who have actually benefited from the period of higher rates.

"First-time buyers are very active right now. They're pretty much running at record highs in terms of market share. So, there's always two sides to the coin," Mr Davidson said.

As mortgages became more expensive, the numbers were not adding up for Kiwi investors.

"If you're thinking about buying a typical rental property right now, the rent you get will nowhere near cover the mortgage," Mr Davidson said. 

He said as rates fell, investors might "start to feel more comfortable".

"It's tough for investors, owner-occupiers haven't moved around as much as they normally do, but first home buyers are making hay — enjoying less competition, a lot of choice, they can get a lower price or a better house," Mr Davidson said.

The "maths is getting a lot easier" for some prospective buyers, according to Ms Zollner.

"In terms of house prices relative to income, this correction we've had has actually undone all the damage that we did to housing affordability during COVID," she said.

Rate cut 'a little bit of a punt'

The question for New Zealand, and the one its central bank believes it has answered, is whether or not inflation is truly on track to be comfortably within the target range.

Ms Zollner described the early rate cut as "a little bit of a punt".

"I think it's an interesting risk. The question is how much activity was deferred as opposed to cancelled — that could be home purchases, could be business investment, could be consumer spending on durables, for example," she said.

"How much have people just been waiting for this moment for rates to turn, and then they will actually have the confidence to spend?

"I think there is a possibility that the economy could actually respond to these rate cuts more vigorously than anyone, including us, is forecasting."

Consumer confidence suggests spring has brought a brighter outlook, but arrears and hardship numbers are a reminder that there is still some work to do before life gets easier in many Kiwi households.

Over the month of July, consumer arrears did ease, with the number of people behind on their payments falling to 456,000, down 9,000 month-on-month.

But there has been an increase in financial hardship cases in the last month, a figure that has been steadily rising since November 2022.

Year-on-year, the number of financial hardship accounts are up by 26.6 per cent.

Looking deeper at the data, financial stress in New Zealand has statistically improved for people under 30 as inflation has eased.

But for older consumers, who are more likely to have a mortgage, debt stress has been very real in recent months and the reserve bank's decision to start cutting rates may ease that.