Homeowners under pressure as mortgage arrears hit near four-year high

Mortgage arrears have climbed to a near four-year high as homeowners continue to come under pressure from high interest rates.

Centrix’s latest Credit Indicator report covering December 2023 revealed there are more than 20,800 mortgage accounts past due, up 21 per cent from the same period a year prior.

The proportion of home loans reported in arrears rose to 1.40 per cent in December, up from 1.33 per cent in November.

Mortgage arrears were last higher in March 2020 (1.49 per cent) when Covid-19 hit but remain low historically.

Home loan arrears had been steadily declining since May, when they were at 1.32 per cent, hovering between 1.25 and 1.26 per cent over July to September.

“The arrears cycle typically spikes at this time of year around the holiday season. That said, it is still challenging for homeowners,” said Centrix managing director Keith McLaughlin.

“Mortgage stress is expected to increase further, as many home loans are still to be repriced on to higher interest rates, which could create more cash flow difficulties for some homeowners.”

This week, the Reserve Bank kept up its hawkish stance on inflation, countering talk of cuts to the official cash rate (OCR).

“Until we see interest rates relief and/or cost of living relief, marginal households will continue to struggle, and this will be exacerbated if there is a material rise in unemployment,” McLaughlin said.

CoreLogic chief property economist Kelvin Davidson told the Herald it was seeing a similar trend in its own mortgagee sales data.

Mortgagee sales were up to 81 in the last quarter, the most since the final quarter of 2017. However, they are still well down on levels seen through the Global Financial Crisis (767 in Q3 2009).

“The strength of the labour market has helped to keep these issues at bay, but the latest data does still suggest that the effects of higher mortgage rates might finally be starting to show through,” Davidson said.

“If anything, the risks for ‘problem loans’ are arguably still to the upside too, given that 55 per cent of existing mortgages [by value] still need to be repriced to current mortgage rates within the next 12 months.”

Davidson also pointed to non-performing loans still only being about 0.4 per cent of the value of all outstanding mortgages.

“So again, quite low, but just starting to rise a little,” he said.

New Zealanders’ appetite to take on more mortgage debt appears to be in decline, according to Centrix figures, with new household lending in December down 8 per cent year-on-year.

This coincides with sale volumes remaining relatively low across the country compared to prior years.

More than $4.67 billion of new mortgage lending was issued, down from $5.07b in December 2022, but levels remain consistent with that seen throughout 2019.

However, the real estate sector experienced an increase in first-home buyers, who made up almost a quarter (24 per cent) of all new residential mortgage lending in the fourth quarter of 2023.

Challenges remain for first-home buyers

Despite this, the financial challenges for many first-home buyers are stark.

Centrix figures show the average mortgage loan for first-home buyers was $540,000 in the fourth quarter of 2023.

Although this had fallen 9 per cent from a peak of $594,000 in the first quarter of 2022, the average loan for first-home buyers has increased by 50 per cent over a five-year period from 2018 to 2023.

In 2018, the average mortgage loan for first-home buyers was $370,000.

Unsurprising, then, that the average age of a first-home buyer remains 37.

Consumer arrears up, business defaults remain elevated

Consumer arrears climbed to 12.01 per cent of the credit active population in December 2023, up from 11.90 per cent in November.

The number of people behind on their payments rose from 435,000 to 439,000 in that time, a 6.1 per cent increase year-on-year, with levels now tracking closely to 2018 after coming off historic lows.

This was in line with seasonal trends, McLaughlin said.

“As expected, we saw an uptick in consumer credit demand in December and January across both personal and Buy Now Pay Later products, as people turned to credit to take advantage of the holiday retail sales season,” he said.

Business credit defaults climbed 27 per cent year-on-year in December 2023, while company liquidations rose 16 per cent over the same period.

The retail trade and construction sectors were most impacted.

“The construction sector in particular sees companies twice more likely to fail [2.2x] than the typical NZ business, with 26 per cent of all company liquidations in the past year coming from this sector,” McLaughlin said.

Liquidations in retail trade were up 74 per cent year-on-year.

“All eyes are on the Government to see how they tackle the economic climate and what 2024 has in store for consumers and businesses alike,” McLaughlin said.

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