Key Points:

Banks have come under fire for not heeding Reserve Bank Governor Alan Bollard and sharing struggling borrowers' pain. While falling interest rates - driven by Bollard's enthusiastic cuts to the official cash rate - offer respite to stretched homeowners, most have to break long-term fixed loans to benefit.

They face hefty charges for the privilege, which often negate the potential interest saving.

Veteran investor Olly Newland says he is scandalised by the fees banks charge struggling homeowners seeking to move from fixed to lower floating rates. He says it's an outrage that banks making multi-million dollar profits prefer to drive people to the wall than give them a break.

"They're just merciless - and they're supposed to share the pain."

Kiwibank's Bruce Thompson says break costs are a transfer of actual costs from the bank to the customer who is seeking to break the contract. Not passing on the costs is a direct loss to the bank.

"The bank takes out its own contract to finance the loan and if you break your contract, then the bank contract must also be paid out."

Bollard told banks earlier this month to pass on lower interest rates and easier conditions to customers, observing that profit margins have stayed high "and indeed grown".

Banks have the means to stem more defaults, says Newland, but instead they remain rapacious.

BNZ's Blair Vernon says with petrol prices falling, people's ability to service their fixed rate should improve if their budget accounted for the fixed rate at the time they took the loan.

But Newland says when people return from holiday next year, those stuck on high interest rates "hanging on with their fingertips" will capitulate to the prospect of persevering another year and sell up. This will add to further property price falls before the market flattens again.

Values will spike briefly in three to six months on the back of low interest rates, says market commentator Kieran Trass: "A whole lot of people go out and buy property because they can afford to when interest rates drop, but this is a passing wave." By the end of next year values will again weaken.

The other market fundamentals are still unfavourable: prices are high relative to incomes, migration inflows are modest and job security now carries a degree of uncertainty, says Tuffley.

Westpac chief economist Brendan O'Donovan says a second consecutive year of house price decline is not something New Zealand has experienced since at least the 1950s.

But the United States has led the world into this house price bust, and their pace of house price decline accelerated from -5 per cent in the first year to -17 per cent in the second. To suggest New Zealand will behave differently would be "boldly optimistic".

Quotable Value's figures show a national housing market reversal of 6.8 per cent this year, but O'Donovan thinks prices have actually fallen around 8 per cent and he expects another 5 per cent fall next year.

"This has been one of the toughest years on record," says Massey University's analyst Bob Hargreaves.