"The technical term for what has been going on in Iceland - and other emerging markets - is a carry trade. Inflation and interest rates are low in the leading industrial nations, and their currencies have been moving in fairly tight ranges. Central bankers tend to like this state of affairs, because it suggests economic stability. Investors don't like it nearly so much, because it means returns are not as big as they would like. So, they have been filling their boots with money borrowed in dollars, yen, Swiss francs and euros (at suitably low rates of interest) and buying assets in countries where interest rates are much higher (including Iceland)."
And New Zealand - that is how banks are managing to offer fixed rate mortgages (2yr 7.95%) at substatially lower rates than floating (9.55%) (http://www.interest.co.nz/mortgages.asp).
What these (often Japanese) investors are betting is that the NZD (or ISK) remain stable against their baseline currency (e.g. JPY). If they lose this confidence, then they will either want a higher premium for Uridashi and EuroKiwi (NZD denominated bonds marketed in Japan/Europe) or will bale out of the market altogether - this will send (fixed) mortgage rates up as the banks switch to alternative conventional financing.
When that happens, it could be the tipping point for the housing market.