The housing market is showing signs of revival, fuelled by a battle between banks to attract borrowers.
The benchmark Official Cash Rate has gone up from 2.5 percent to 3.5 percent this year but the Reserve Bank estimates the effective mortgage rate has risen by less than one third of that.
A director at mortgage broker Loan Market, Bruce Patten, said buyer demand has picked up recently and one factor that has been a battle between banks to attract borrowers.
Two-year fixed rates have fallen below 6 percent and are now little changed from where they were when the Reserve Bank started raising rates.
Mr Patten said households were jumping at the chance to lock in low rates.
"People are starting to go 'well the rates are still pretty good, I can lock it in, lets get into the market and know what we're paying for the next few years'."
Bankers Association chief executive Kirk Hope said cheap foreign funds and intense competition are behind the mortgage war.
"Credit growth remains low at around five percent so that's driving strong competition amongst our banks in mortgage lending.
"But one of the major factors is banks don't fully fund off the Official Cash Rate and the cost of some of those funding sources is declining."
Exporters' and Manufacturers Association chief executive John Walley said the health of the wider economy would be threatened if the Reserve Bank had to act precipitously to rein in the housing market.
If the central bank needed to take action, it should use measures such as loan to value or loan to income controls, he said.
"That way we limit the amount of debt that finds its way into the housing market, because fundamentally that's not good for the productive sector in New Zealand."
However, UBS senior economist Robin Clements doubts the current mortgage battle would reignite the housing market.
And Kirk Hope, of the Bankers' Association, said the Reserve Bank will be mindful that the recent slump in dairy prices and a still high dollar will continue to keep a lid on growth.
"The bigger challenge is if they push the OCR up too quickly at a time when the economy appears to be softening going into an election - that suddenly the OCR comes on and the brakes come right on the economy. I think that's a bigger risk, to be honest."
Analysts say the Reserve Bank is on hold from raising interest rates until December at the earliest.