Mortgage squeeze: More loan payments missed as Kiwis feel pinch of rising rates

Rising interest rates are putting mortgage holders under pressure. Photo / NZME

More Kiwis are falling behind on their mortgages as rising interest rates continue to put pressure on homeowners.

New data from credit bureau Centrix comes ahead of the Reserve Bank being widely expected to hike the Official Cash Rate on Wednesday, causing further pain for many with a mortgage.

According to Centrix, missed mortgage repayments in February rose to 18,900, which accounts for 1.29 per cent of mortgages nationwide. This was up 23 per cent year-on-year.

However, mortgage arrears still remain below pre-Covid levels when they were 1.35 per cent in December 2019 and a high of 1.55 per cent (March 2017) over the last six years.

Centrix managing director Keith McLaughlin said as more households roll off fixed rates and need to refinance at a higher interest rate, property owners could feel these impacts well into the future.

“For anyone looking to buy property at the moment, these high-interest rates won’t be boding well for their long-term mortgage repayment prospect either,” he said.

The Reserve Bank is set to go another round in its fight against inflation on Wednesday when it delivers its latest Monetary Policy Review.

Economists are largely predicting the Official Cash Rate to be hiked a further 25 basis points from its current 4.75 per cent.

Centrix’s figures revealed new mortgage lending in February was down 42 per cent year-on-year to $2.97 billion, from $5.096b in February 2022.

Compared with the prior month, new mortgage lending rose from $2.715b.

Mortgage applications remain down 7 per cent year-on-year in February 2023, but had a monthly rise of 15 per cent compared to January.

Last year saw a rise in mortgagee sales, according to figures from CoreLogic.

There were 33 mortgagee sales in the three months to October 1, 2022, compared with just nine in the previous year’s corresponding period.

In the three months to April and July last year there were 21 and 30 mortgagee sales respectively, compared with 21 and 19 in the same periods in 2021.

Loan Market mortgage adviser Bruce Patten said his firm was seeing a fair bit of mortgage pressure at the moment, predominately among first-home buyers.

“We’ve got young ones that have rented their properties and moved back home with their parents so they can afford to retain the property,” he said.

Patten said those who kept paying the same interest repayments when the Reserve Bank first cut the OCR to 0.25 per cent after Covid-19 hit New Zealand were overall doing better than those who hadn’t.

“There are a lot of people that have got that buffer, equally there are a lot that don’t. They’re the ones that are going to struggle.

“For them it’s just about making it through the next 12 months before we get a bit of relief.

“From a market perspective it’s about 40 per cent of people are paying more [in interest] than what they need to, our books [show] probably more like 60 per cent.

“That doesn’t work unfortunately for the first home buyer, younger generation, where they’ve never seen a rate above 3 per cent because they’ve only been in the market a few years.”

Patten said Wednesday’s OCR call was going to be crucial.

He said recent flood events and Cyclone Gabrielle - which the Government was providing support for - added to inflationary pressures.

“This most recent potential increase, and the next one if it comes, they’re just adding to an already big increase in rates.

“The big pressure comes for all of those people coming off 2.50 per cent [interest rates]. This next six months there’s a huge number of people coming off 2 and 3 per cent rates going on to 6 per cent.”

As of December 2022, the average rate (fixed and floating) being paid by mortgage holders was only 4.35 per cent, according to Reserve Bank figures.

This remains on par with the average home loan rate being paid in August 2019 but is up significantly on the 2.83 per cent average in September 2021.

John Bolton, founder of mortgage broker company Squirrel, said the predicted OCR increase would impact a “broad brush” of people, but some more than others.

”If there were a couple of groups that I would single out as being more impacted, I think sort of anyone that was buying their first home in the last couple of years and stretched themselves into it is really feeling it at the moment,” Bolton said.

”And the other groups I’d say are hard hit mum and dad property investors who maybe stretched themselves into an investment property when interest rates were low and grappling with much higher costs across the board as well as higher interest rates.”

Bolton said there is some commonality between this period and the Global Financial crisis of 2008, which is a rapid “fear of the market” which means lots of buyers opted not to buy in.

Bolton said the 0.25 per cent rise was expected, and it won’t make much of a difference as the “damage is already done” to the market.

He said when Adrian Orr put the “fear of god” into people during November of last year, people lost a lot of confidence in the market, however, with the 0.25 per cent rise, it shows the plateau in the market, and with that a rise in confidence.

Bolton reported he has seen an increase in activity within the market over the last three to four weeks, which proves this sentiment.

Meanwhile, recently released data from RBNZ shows similar trends in mortgage lending.

New mortgage commitments fell $1.9 billion, or 33.1 per cent, in February 2023 to $3.8b compared with a year ago.

This decrease was mainly driven by lending to non-first home buyer owner occupiers, which fell 36.3 per cent to $2.3b from $3.7b in February 2022.

The value of new commitments to first home buyers in February was $0.8b, down 14.5 per cent from $0.95b in February 2022.

According to Centrix, credit card arrears dipped slightly on a monthly basis, falling to 4.7 per cent in February, from 5.0 per cent in January, however, remain higher year-on-year from 4.4 per cent in February 2022.

Buy now pay later account arrears remain near an all-time high, rising to 9.2 per cent in February from 8.3 per cent a year ago.

Vehicle loan arrears were also up year-on-year to 5.4 per cent in February from 4.0 per cent in 2022.

Consumer lending rose 19 per cent year-on-year, driven largely by new personal and vehicle loans being issued.

New consumer loans for February was $492 million, up from $471m in January, and $413m in February 2022.