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Mortgage Arrears Hit Eight-Year High Amidst Challenging Economic Climate in New Zealand
The economic climate in New Zealand remains challenging, with various forms of debt creating significant hardship for consumers and businesses alike, according to the latest report by credit agency Centrix.
The February credit report highlights a troubling rise in mortgage arrears, which have reached an eight-year high. Additionally, personal loans, buy-now-pay-later (BNPL) schemes, retail energy, and telco arrears are also on the rise.
Consumer credit defaults surged by 42% compared to the previous year, while personal insolvencies showed signs of an uptick, although they remained below historical levels.
Financial hardship cases have reached the highest level in five years, with 14,700 accounts affected. Although arrears were 3% lower than the previous year—the first year-on-year improvement since December 2021—hardships were still up 20% overall. Notably, 46% of hardships were related to mortgage payments, 30% to credit card debt, and 16% to personal loans.
Arrears on consumer and personal loans increased by 9.7%, while BNPL arrears rose by 8.6% month-on-month, although both were down compared to the previous year. Retail energy payment arrears climbed to 5.2% month-on-month, up 6% from the previous year, while telco arrears increased nearly 11%.
Mortgage arrears have reached an alarming eight-year high, with 23,700 home loans past due—a 6% year-on-year increase.
“It will be interesting to see how changes to interest rates across the banks impact these figures as the year progresses,” said Centrix Managing Director Keith McLaughlin. He noted the recent drop in the Reserve Bank’s official cash rate to 3.75% and the forecast for further rate cuts this year.
Stable Credit Demand Amidst Rising Debt
Despite the increasing debt, demand for consumer credit remained stable, with a slight 0.5% drop year-to-date. Mortgage applications saw an 11% increase, with new mortgage lending up by 18%. Overall, new household lending rose by 16.5% year-on-year.
Business Credit Trends Show Increased Defaults
Company defaults have risen across all sectors, particularly in construction and transport, with liquidations up 38% over the past year. These were mostly due to actions brought by Inland Revenue to recover unpaid taxes. In the professional sector, 204 companies were placed into liquidation, a 45% year-on-year increase, highlighting challenges due to reduced demand for services.
“It’s important for business owners to make sure their financial house is in order, especially as the economy remains uncertain for the remainder of the year,” McLaughlin emphasized.
SOURCE: 1NEWS