More than 480,000 Kiwis behind in debt payments

New Zealanders began the new year under more financial strain as mortgage and credit arrears climbed higher, according to credit company Centrix.

The number of homeowners behind on their mortgage repayments rose to
more than 21,800 in January, up 16 per cent year-on-year, Centrix’s latest Credit Indicator report showed.

The percentage of mortgages in arrears climbed to 1.47 per cent in January, up from 1.40 per cent in December.

This was the highest level recorded since before Covid – mortgage arrears were at 1.49 per cent in March 2020. However, the figure still remains low historically.

“The trend we’ve observed definitely points towards a normalising trend for mortgage arrears,” said Centrix managing director Keith McLaughlin.

“One of the key factors for the initial drop during the Covid years was low interest rates and the introduction of Government support packages to support Kiwi households to service their mortgages during this uncertain period.

“We also saw many credit providers soften their policies during this period, which contributes to what can be seen as artificially low arrears rates. We’re now seeing a return to a ‘normal’ level as we swing out of the Covid bubble.”

Only 0.5 per cent of bank loans to residential property owners were non-performing in January, according to Reserve Bank of New Zealand (RBNZ) figures.

While this figure has ticked up from 0.3 in January last year, it remains well below the 1.2 per cent post-GFC peak.

RBNZ figures show the average rate (fixed and floating) being paid on mortgage lending in December was 5.85 per cent.

There’s some catching up to do still for some homeowners, with six-month and one-year fixed home loan rates hovering around 7.24 to 7.40 per cent.

Among the less popular longer term rates, the cheapest available out of the five major banks sits at 6.39 per cent for five years.

Short-term rates have been slower to come down than longer-term ones, but both ANZ and ASB this week came to the party on that front.

ASB knocked 10 basis points off its one-year fixed rate to 7.29 per cent, while ANZ’s one-year fixed rate fell 15bp to 7.84 per cent (standard) and 7.24 per cent (special).

The outlook for future rate hikes appears to be all but dead and buried after the RBNZ delivered a more dovish stance last week as it kept the official cash rate on hold at 5.5 per cent.

However, when mortgage holders can start expecting cuts to the OCR is a matter of differing opinion among economists.

Summer credit crunch catches up to consumers

Consumer arrears rose to a seven-year high in January, with 13.09 per cent of accounts behind on repayments.

This was up 9.6 per cent year-on-year, and the highest level of arrears reported since February 2017.

The number of consumers behind on payments in January was 480,000, up from 439,000 in the prior month.

McLaughlin said they tend to observe arrears cycles peak at this time of year, following the festive season and summer holiday break.

“[It’s] important to note that the majority of reported arrears have only missed one payment and are likely to self-correct,” he said.

Looking deeper into the data, the cost of living crisis has not impacted everyone equally, McLaughlin said.

“The financial strain skews towards the younger demographics. Those under 25 years old are more prone to cash flow problems due to likely lower incomes, limited savings and less financial experience,” McLaughlin said.

“We are now starting to see the squeeze flow on to 30-40 year olds, who are likely more financially stable but have perhaps used their buffers.”

Arrears were up across the board in January, Centrix’s data showed.

The percentage of vehicle loans in arrears climbed to 6.0 per cent, up 5 per cent year-on-year.

Credit card arrears also rose to 4.9 per cent, albeit low compared to historical levels.

Missed repayments for personal loans and “buy now, pay later” schemes rose to 9.9 per cent and 9.0 per cent of active accounts respectively.

Meanwhile, overall consumer credit demand was up 6.0 per cent year-on-year in February, driven by an increased demand for credit cards (up 15 per cent) and buy now, pay later products (up 14.1 per cent).

Small businesses are also facing higher and increasing levels of mortgage stress.

“We’ve observed an upswing in mortgage stress for a sole proprietor, with many needing to leverage their home equity to continue funding their businesses – a concerning trend that could spell trouble for these owners in the long term,” McLaughlin said.

Tom Hartmann, personal finance lead at Sorted, said they were seeing the same trends.

“It’s just rising like a tide, gradually,” he said.

“There are life situations where although we would want to meet all our obligations [to lenders], it’s just not possible.

“The interest rates situation in particular is exacerbating it.”

Hartmann said when it comes to budgeting, people can look to find extra money through things like: switching broadband and power providers to find a better deal; evaluating the things they spend money on in terms of their emotional return; grocery shopping online so they can see the cart adding up in real-time; and by prioritising repayments or through a consolidating loan.

“The bigger things that we don’t realise that we’re spending on [are] in interest,” he said.

“We can spend thousands and thousands of dollars on shorter-term high-interest debt – things like credit cards.”

“It doesn’t seem like it’s a lot at first, but actually, it’s a lot.”

He said MoneyTalks has free budgeting and debt help which is personalised for individuals and can help, but the most important thing is to not put off getting in touch with lenders if you are in trouble.

“They see this on a regular basis.

“Very often they are able to restructure or fundamentally change the repayment scheduling in order to help people through a tough time.”

Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports.