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More Kiwis fall behind in mortgage arrears


Tough times for many families as rising expenses create a vicious cycle of debt and arrears (INL Image)

Praneeta Mahajan
Hamilton, May 11, 2023

The latest data from Stats NZ saw inflation increase 6.7% in the 12 months to March 2023, following a 7.2% increase in the 12 months to December 2022. Despite this, consumer prices rose 1.2% for the three months ending March 2023, driven by several factors including household costs (such as rents, rates, maintenance) and climbing food prices.

In tandem with rising prices, consumer credit arrears also climbed for Kiwi households. In March 2023, 11.8% of the credit active population reported repayment arrears. Driven primarily by Buy Now Pay Later (BNPL) and unsecured personal loan arrears, it is clear that many are feeling the pressure to meet their repayment obligations in the current economic climate.

Furthermore, mortgage arrears also continued to climb for the eighth consecutive month in March, with 1.31% of residential mortgages (19,300) reported as past due, up 26% year-on-year. In addition, new mortgage lending was down 48% year-on-year in March 2023, while new mortgage enquiries were down 15% year-on-year in April 2023.

Keith McLaughlin Managing Director for Centrix, Credit Bureau of New Zealand said, “While we might soon be approaching a turning point for the current climate, it is likely to be several more months of challenging conditions for Kiwi households and businesses alike. We implore anyone struggling to meet their credit repayment obligations to reach out to their bank or creditors to come to an agreement, rather than slipping into a cycle of arrears.”

What the numbers say

Consumer arrears up in March In March 2023, consumer arrears climbed to 11.8% of the credit active population, impacting 427,000 people who are behind on their repayments. This is a slight increase from 11.5% in February 2023. The current arrears level is 8% higher on a year-on-year basis as cost-of-living pressures persist. Unsecured personal loan arrears have edged up to 9.0% in March (compared to 7.9% in March 2022) as costs pressures remain for Kiwi households. While arrears on auto loans slightly improved in March 2023 (down to 5.3% from 5.5% in February 2023), they remain significantly up year-on-year (3.6% in March 2022).

Home loan arrears grow

The property market continues to be impacted by the ongoing cost-of-living crisis, with mortgage arrears climbing for the eighth consecutive month to 1.31% in March 2023 – there are 19,300 mortgage accounts past due. This is up 26% year-on-year, but still low by historic standards. Additionally, new mortgage lending was down 48% year-on-year in March 2023 as sales volumes continue to slump.

Who is struggling the most

As mortgage rates climb putting homeowners under stress, arrears are rising by as much as 50% in some regions. Data from credit agency Centrix had earlier shown a 24% increase in arrears nationwide in December 2022.

In Auckland, arrears had risen by 41% over the same period. In Hamilton, the rise was 33%, while in Wellington and Christchurch the increase was 15% and 8% respectively.

The worst hit district in the country is Waitomo with a 50% increase in mortgage arrears. Other districts that are hard hit include Western Bay of Plenty 43%, Ruapehu 39%, Matamata-Piako and Kaikoura 37%, Kawerau 33%, Tasman 34%, and 32% for Rotorua.

‘Buy Now Pay later’ arrears reach record high

BNPL arrears reach record high In line with unsecured personal loan arrears, the number of BNPL arrears also rose in March 2023, climbing to a record high 10.5% of accounts behind on repayments. Furthermore, credit cards arrears also increased in March 2023 (4.9%), as did the number of telco and broadband accounts behind on repayments (8.8%). The proportion of utility accounts reported overdue held steady at 3.7%.

Many families are struggling to pay for essentials, and opting for ‘Buy now pay later’ schemes, ending up with debt of hundreds of dollars. Shoppers feel they have no other choice and while being fully aware of the pressure they would put themselves in, it is the priority of food on the table that is a priority for many.

Business defaults seen across the board

Business defaults rise across the board Kiwi businesses are continuing to feel the squeeze as defaults increase across several sectors year-on-year in March 2023 – including construction (+13%), retail trade (+12%), hospitality (+10%) and property (+3%). Looking at the hospitality sector specifically, there are over 28,000 registered companies in the hospitality sector (4% of all registered companies). Hospitality businesses are currently two and half times more likely to fail (2.5x) than the typical NZ business, accounting for 10% of all company liquidations in the last 12 months.

What is driving the pressure

“Inflation is still at levels not seen since the 1990s,” consumer prices senior manager Nicola Growden said. Food was the largest contributor to the March 2023 annual inflation rate. This was due to rising prices for vegetables, ready-to-eat food, and milk, cheese, and eggs.

Vegetable prices increased 22 percent in the 12 months to March 2023, while ready-to-eat food and milk, cheese and eggs increased 9.7 percent and 15 percent, respectively.

“Increasing prices for barn or cage-raised eggs, potato chips, and 6-pack yoghurt were the largest drivers within grocery food,” consumer prices manager James Mitchell said.

In March 2023, the annual increase was due to rises across all the broad food categories Stats NZ measures. Compared with March 2022:

  • grocery food prices increased by 14 percent
  • fruit and vegetables prices increased by 22 percent
  • restaurant meals and ready-to-eat food prices increased by 8.7 percent
  • meat, poultry and fish prices increased by 7.8 percent
  • non-alcoholic beverage prices increased by 8.2 percent.

After food, the next largest contributor to the annual increase was housing and household utilities. The increase was due to rising prices for both construction and rents. Rents increased 4.3 percent in the 12 months to March 2023. This follows an increase of 4.4 percent in the 12 months to December 2022.

Prices for building a new house increased 11 percent in the 12 months to March 2023, following a 14 percent increase in the 12 months to December 2022. “Respondents reported that higher costs of materials and labour continued to drive the increase of building a new home,” Ms Growden said.

Praneeta Mahajan is an Indian Newslink reporter based in Hamilton.

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