If you are having financial trouble, Nick Stewart says it's best to ask for help sooner rather than later. Photo / Supplied
If you are having financial trouble, Nick Stewart says it's best to ask for help sooner rather than later. Photo / Supplied
When the subheading for the report reads “Increased credit activity and arrears point to challenging 2023 ahead”, you know the data isn’t going to be good news.
To sum up the report: new mortgage lending is down. Way down, at 43 per cent less year-on-year. In a post-CCCFA, current-cost-of-living crisisworld, that’s not surprising.
New consumer loans, or personal loans, are up 27 per cent in the same period to December 2022. And on top of that, we’re seeing consumer arrears hitting a three-year high at 11.3 per cent, a sharp 10 per cent increase year-on-year. This is the highest since February 2020, back in the initial uncertainty of Covid times... Only the economic landscape is quite different.
The total arrears in Hawke’s Bay is listed at 12.73 per cent, second only to Gisborne’s 14.07 per cent. This data was pre-Gabrielle, with the most recent report dated January 2023. This isn’t the highest it’s been historically, but it is a concerning rise in the number of Kiwis behind on their payments.
There are two main differences in the type of debt you can take on – and different iterations of each, but for the sake of this article let’s focus on the difference between secured and unsecured loans.
To look at it simply, the difference between secured and unsecured debt is whether or not you have collateral against it. Mortgages and automobile loans are secured because you have an asset as collateral and there’s more certainty the buyer will pay back the loan.
Things like payday loans are unsecured, and typically you’re borrowing less at a higher interest rate to compensate for the uncertainty.
Multigenerational wealth is a complex, multi-faceted thing, writes Nick Stewart. Photo Supplied
For example, your mortgage might be between 6 and 8 per cent depending on whether you’re currently fixed or floating.
The interest rate on an unsecured loan (or personal loan) from the big banks can be from 12 to 14 per cent, and from a finance company the highest figure in the table was a whopping 29.95 per cent.
There’s also a difference in minimum debt you can take on to access these loans: ANZ has personal loans for amounts between $3000 and $50,000 (with $1000 options for under 21s or students).
And of course, there’s always the silent assassin that is buy now, pay later (BNPL) schemes. While they don’t charge interest like an official unsecured loan does (which keeps them neatly out of that category and makes them worrisomely accessible), they do sting you with steep late fees every time you miss a payment – which can add up quickly.
The Centrix data shows BNPL arrears at 9.2 per cent, showing the number of people caught in that spiral was growing. In contrast, credit card arrears are at an increased 4.2 per cent, with demand for credit cards up 21.7 per cent from the same time last year.
As yet, 2019 remains a worse year for arrears than 2023. But it is only March, and we did just go through another round of unprecedented events with flooding and storms. People are unhoused, facing loss of property, business and even loved ones, and on top of that RBNZ is still predicting a recession this year in the battle to sink inflation.
Financial difficulties are affecting a wide range of Kiwis. It’s not just people in lower income brackets, it’s households who would have previously been fine, earning well over the median wage. So if people on previously comfortable incomes are starting to slip, the pressure on everyone below that must be immense.
Contributing to some of this will be the housing market. It’s been a point of pride for years in New Zealand to be “on the ladder”, but as economist Shamubeel Eaqub noted in a recent interview… the ladder has turned into a snake.
Those who entered the property market recently when prices were high and interest rates were low have now found themselves in a reversed situation where their home loan rates have sharply increased, as the value of their property drops. They’re left to pay higher bills, on a loan for more than their home is currently worth, on an income already eroded from increased living costs. It’s not a mystery why a not-insignificant chunk of homeowners will be doing it tough at the moment.
There is a stigma around financial difficulties where they can be attributed to some kind of moral failure. But even in the best of times, knowing what to do with your money (or lack of it) isn’t inherent knowledge… and this is not the best of times.
We will see a lot of people struggling mentally and emotionally with the burden of financial stress this year.
The best offence is often defence. If you know you are starting to slip into a situation you won’t easily get out of, there are budget advisory services you can use to help keep you on track.
Sorted.org has a free budgeting tool. Booster (a KiwiSaver scheme) has its free mybudgetpal app which cleverly pulls through banking transactions. Or if you need someone to talk to directly, you can access free, confidential services via MoneyTalks.
Seek help before you really need it. Inaction is not going to work out if you’re already struggling. A burden shared is a burden halved.
Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a financial adviser and CEO at Stewart Group, a Hawke’s Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance and KiwiSaver scheme solutions.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
