Cost of living: Missed mortgage, credit repayments creep up

New data shows how Kiwis are faring in the current economic climate. Photo / 123RF

Signs of Kiwis starting to cope with higher costs may have been premature as latest credit data shows both mortgage and consumer arrears have marched back up.

Centrix’s credit indicator report covering May marked a return of an increasing number of households missing their home loan repayments after the figure had fallen the prior month for the first time in eight months.

“Last month, we saw a slowing of arrears growth, which begged the question – are we starting to see the economy plateau?” said Keith McLaughlin, Centrix managing director.

“Unfortunately not.”

“Since the start of 2023, we’ve seen a degree of uncertainty and yo-yoing across a number of our credit indicators,” he said. “But the clear takeaway is arrears are rising.”

Mortgage arrears rose to 1.32 per cent of the active population, up from 1.27 per cent in April, to the highest level reported since March 2020. However, back then home loan arrears were at 1.49 per cent and reached as high as 1.55 per cent in March 2017.

There are now 19,500 mortgage accounts reported as past due, up 34 per cent on a year-on-year basis, according to Centrix.

With more households still to roll off fixed-rate mortgages, they’ll do so on to likely higher interest rates.

Canstar NZ’s comparison of home loans shows the average one-year fixed owner-occupier mortgage rate as of June 30 is 7.12 per cent – with a wide disparity between the lowest and highest rates – compared with 2.58 per cent in August 2021.

But figures from the Reserve Bank show the average rate (fixed) being paid on mortgage lending in April was just 4.63 per cent.

Around the country, mortgage arrears in May were highest in the Opotiki district (2.83 per cent), Hauraki district (2.72 per cent), Far North district (2.67 per cent), South Taranaki district (2.60 per cent) and Ruapehu district (2.40 per cent).

Those in Wellington City were keeping ahead of their mortgages more than anywhere else with just 0.79 per cent in arrears, followed by Selwyn district (0.91 per cent), and Hamilton City, Carterton district and Nelson City (all 1 per cent).

“Adding to this, new mortgage lending was down 27 per cent year-on-year as the real estate sector continues to grapple with a downturn in activity,” McLaughlin said.

According to Centrix, new mortgage lending in May came to $4.068 billion, down from $5.613b in May 2022.

Last week the Herald reported on figures from the RBNZ that showed first-home buyers are propping up an otherwise sluggish housing market, accounting for a record high 24.3 per cent of the $5.9b of new mortgage lending in May.

Overall consumer arrears exceeded 2019 levels for the first time with 11.7 per cent of the active credit population behind on repayments – up from 11.3 per cent in April.

Arrears in May were up 4 per cent year-on-year with the number of people behind on repayments rising to 426,000. On a monthly basis there were 15,000 more people behind on their repayments compared with April.

“This includes double-digit arrears for both unsecured personal loans (10 per cent) and buy now, pay later accounts (10.4 per cent) as people continue to feel the pinch of the current economic climate,” McLaughlin said.

Centrix managing director Keith McLaughlin. Photo / Supplied

And demand for almost all credit products – except mortgages and personal loans – also rose. New vehicle loan demand remained buoyant with inquiries up 17 per cent compared with May last year, while demand for credit cards and retail energy were both up 15.7 per cent.

Business credit defaults also climbed, led by property and rental (up 22 per cent year-on-year), hospitality (up 17 per cent), retail trade (up 17 per cent) and construction (up 16 per cent).

“It is important to note that a credit default is a lag indicator – the arrears position occurs several months prior to a default being lodged,” McLaughlin said.

Company liquidations were 35 per cent higher when compared with May 2022.

“There’s no question some Kiwi households and businesses are walking an economic tightrope. While homeowners contend with rising mortgage interest rates and the financial squeeze, business owners are grappling with downturned activity and spending,” McLaughlin said.

Recent economic data has highlighted the struggle facing both households and businesses.

Retail spending slumped in the month of May for the first time since February, figures from StatsNZ show.

Electronic card spending fell a weaker-than-expected $113 million, or 1.7 per cent, in May compared to April, with core spending (excluding fuel) down 1.2 per cent.

It was also confirmed that New Zealand entered a recession in the March quarter after the economy contracted for the second consecutive quarter.

Meanwhile, StatsNZ’s food price index last month revealed food prices increased 12.1 per cent in the 12 months to May 2023, keeping them close to 30-year highs.

But a monthly increase of 0.3 per cent – the lowest recorded since April 2022 – suggests food price inflation may finally have peaked.

McLaughlin cautioned that falling behind on repayments now can cause headaches in the long term.

“If you’re at risk of falling behind on repayments, speak with your creditors to come to an agreement to avoid becoming considered a lending risk in the future.”

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