Around 7.7% of all residential mortgages are effectively in arrears when the COVID-19 related mortgage deferral scheme is taken into account, the managing director of credit bureau Centrix says.
Centrix's Keith McLaughlin told interest.co.nz that whilst only 1% of mortgages are officially in arrears, another 6.7% are currently in the deferral scheme.
"That means 7.7% of mortgages are in arrears or under deferral and that is worrying," McLaughlin said.
"Last year, before we had a deferral scheme in place, 1.3% were in arrears ...now there's 1% in arrears and 6.7% on deferral. That's 7.7% not being paid as and when they were intended."
McLaughlin finds it "quite surprising" that 1% of mortgages have gone into arrears when there is a deferral scheme in place. However, the bigger issue is what happens in March when the deferral scheme ends.
"Lenders are going to have to work very closely with borrowers because there is an accumulation of interest over time. It's not a holiday, it's just a payment deferral. So it could become quite difficult."
The 7.7% is about 73,500 mortgages. That's comprised of the 13,350 currently in arrears, and 61,000 in the deferral scheme.
Lenders will need to work with some of the deferral customers to refinance or restructure their loans, McLaughlin suggests.
"That's going to be very important because if you haven't got a job you haven't got a job. And nobody wants to force a run of mortgagee sales because that does nobody any good."
Loan repayment deferrals were introduced for six months in March at the onset of the COVID-19 crisis. The Reserve Bank agreed last month that banks can extend these deferrals for up to another six months, to March 2021. New Zealand Bankers' Association figures show, as of August 31, a total of 95,038 customers with home loans, personal lending, credit cards and arranged overdrafts, were making reduced payments on lending worth $29.4 billion, or 10% of the market. At the same time 62,274 customers had all loan repayments deferred on $21.2 billion of lending, or 7% of total lending.
Banks are currently able to treat deferred mortgages as performing loans. McLaughlin says 2.1% of mortgages that have come off deferral so far have gone into arrears.
In terms of consumer credit demand, it has dropped from 97% of the pre-COVID level on August 1, to as low as 82%, and risen back to about 95% recently, McLaughlin says.
79 Comments
Reality says there should be mortgagee sales. NINJA loans should be illegal.The questions is does a reset do more damage that endlessly extending and pretending, which punishes savers, renters and youth?
A reset is required. Yes some will impacted, however they are the few stupidly leveraged and the bank profits. So sad. History shows the first bank to move and clear its balance sheet from the lala land lending will be in the best position on the back side.
Which will move first?
If you are not ready to take a little bit more risk, and you are averse to investing in bonds (even Government bonds??) then you don't have many options, true.
However I am wondering if a term deposit is a good option, as the premium for tidying up your funds is so tiny as to be worthless. Maybe keeping money as a call account is an option that at least gives you immediate access to your money once you see an investment opportunity.
Personally, I am keeping some cash money ready to invest in the share-market if things go pear-shaped as a result of the US elections, for example.
There is also the option of transferring funds into banks overseas (for example, in Europe, which is not overly difficult if you have EU citizenship) but this would incur exchange rate risks (but the return that you would get is very close to current NZ rates, and also you would have your funds guaranteed). I personally think that this risk is actually a favourable one (I see the NZ$ dropping against the Euro in the future), but exchange rates are one of the most difficult things to predict.
Superlife provides a UK Cash Fund, but this is unhedged, therefore it is subject the currency risk, and my personal view is that the the UK pound is going to be subject to downward pressure as the Brexit mess is going to hit the UK economy in the near future.
I see you hate gold (which is a more speculative type of investment, I agree, and current prices of gold look inflated), but a little bit of exposure to precious metals (2-3% of the total?) might be good diversification, especially if you want an hedge against future inflation, and your investment horizon is long. There are AU ETF's that allow you to get exposure to precious metals (even a basket of them). You can also buy into the "AU Resources ETF", which would give you indirect exposure to mineral resources.
There are some providers who provide investment funds directed at infrastructure investment, which have been punished in the recent past (especially airports shares) but which may be worth considering if you are looking at the longer term.
You can also buy a little bit more shares, but shift your share ownership into more defensive stocks, if you are keen on minimizing your risk profile.
Just note that I am not an adviser, so whatever I am saying here is totally personal and highly debatable. I am just sharing some personal thoughts, and I hope this might be of some help.
fortunr.....thx so much for taking time to make such an in-depth reply. Had Akld airport shares, took max SPP then sold the lot a few months back (at about $7.10) together with all my Sky City as I am bearish on NZ tourism medium term. Cashed out of lots of other NZ stocks at worst possible time a few months back but at 50 with no employment, no plan to work again and dependent wife and kids, safety first. Have accounts and smallish term deposits in Thailand and USA (as well as TDs in NZ OFC) and could increase the overseas TDs to spread risk and use currency to hedge. I spend a few months a year in Vegas ( playing poker) and am hoping RE there drops like it did in 2008 and buying a property there may be a good long term investment and way to diversify. Will consider a precious metals ETF. Good luck to you and thx again. Much appreciated.
Government's double standard exposed :
When it comes to businesses and regions which are unable to operate or badly affected by border restriction - government is not providing extra assistance to those industries and regions with the justification that government cannit protect all businesses SO by the same logic, why not have the same approach towards housing (Only mortagee deferral has been extended till early/middle next year and for businesses irresective ends now, even if unable to operate or pay).
Would like to hear comments from experts on governments double standard.
I just don't see signals from anywhere that savers are ever to come back into favour again or that there is a long term strategy to get to that way of living.
Which is pretty ironic when there's any talk about action for climate change.
Local and central governments that on one hand start discussing mitigation for the effects of climate change yet on the other continue to push the develop today with borrowings from tomorrow. Ridiculous.
In the 1970s we pushed more and more money into a protected segment of the economy, propping them up with subsidies. NZ got to within one day of running out of money and defaulting on debt. It's amazing that just because some in the ruling classes have invested so heavily in property we seem to be repeating Muldoon's mistake.
Whatever happened to all those folk who advocated for a free market?
Isn’t it better that you let a market to be a market and allow losses without endless backstops?
At one level the housing market is going ballistic (visited an open home on the weekend with at least 20-30 FHB groups frantically looking while several contracts already tabled after 3 days on market), prices getting higher, etc.
While homeowners who can’t keep paying their mortgage due to job loss or business failure are being propped up or extended.
Tough for the individuals but wouldn’t it be better overall to let the market operate fully and freely? Stressed loan holders can still do an urgent discounted sale before the default kicks in in most cases.
I've been going to a bunch of open homes around Wellington in the past few months. Put in 2 offers, both 150k+ above RV and was outbid on both. Won't know by how much for a few weeks.
Think I'm gonna sit on the sidelines for a while longer. The market is too hot, seems frothy according to my reckons.
"That's going to be very important because if you haven't got a job you haven't got a job. And nobody wants to force a run of mortgagee sales because that does nobody any good."
Exactly:
Suspend banks extending 60 % of their lending to one third of households to speculate in the residential property market because the RBNZ offers them a RWA capital reduction incentive to do so.
"And nobody wants to force a run of mortgagee sales because that does nobody any good."
Surely it would be good for some people - the people who want to buy a house. Presumably a run of mortgagee sales would push prices down.
I'm not saying that for this reason, we should absolutely let it happen. I'm just pointing out that its really common for commentators to not even consider the interests of people saving to buy a house at all. If you are going to allow those people to be shafted, at least take the time to explain why the interests of those who already own a home should be protected over the interests of those who don't.
It doesn't matter who votes and who doesn't vote - that's a fallacy when it comes to asset prices - if that's the line of this discussion?
Do you think if the 'have nots' had voting numbers over the 'haves' that central banks would change their monetary policies that have caused asset bubbles around the world? The system is so rigged now and made much to large to fail, that it doesn't matter who votes for what nor what economic policy any given party promises to provide. Heck, I've voted for both National and Labour who promised to resolve the housing crisis. What difference did that make?
But it does raise the point - when do citizens get to vote for monetary policy? It would appear that we do not as the reserve bank is not a political party. But what if their actions are destructive towards significant parts of society? To me, it would appear the central banking philsophy is communist at heart - if not before, it appears to be now. They control everything from asset prices, inflation, value of money. And yet we the people don't get a say on what they do or how they do it - unfair, undemocratic? Well quite probably in my view. To have that power over how a society functions yet don't report to the people - they have that power and influence, yet we don't vote for their decisions? Madness in my view - we may as well live in communist China.
Surely it would be good for some people - the people who want to buy a house. Presumably a run of mortgagee sales would push prices down.
Not necessarily. The 'some people' could be badly hit if mortgagee sales caused a 'run' on house prices as the cumulative effects on the economy could be far more destructive. This is what NZers in general don't really seem to understand. House price movements do not happen in isolation. They impact many other parts of the economy, particularly consumption through the wealth effect.
Some of the some people might be - but not all of them. There are people with stable jobs who would likely stand to benefit.
But at least we are having the right kind of conversation now - I think what talk about what's good for 'the economy' misses is that the 'economy' isn't something that has interests - people are. Things that happen in the economy are usually good for some people and bad for others, and its worth highlighting that or else we end up just focusing on one group of people to the exclusion of others (asset owners) because its good for 'the economy'.
For the 'have nots', well they may find themselves unemployed for 12-24 months. But if it means house prices fall by 50% - then they may find that they save themselves with $300,000 (or greater) less mortgage to service for the rest of their lives.
Question would be - are people willing to suffer in the short term to suffer less in the long term? Its one of those types of behavioural finance/economics questions that Kahneman talks about (like pulling the band aid off fast or slow?)
Question would be - are people willing to suffer in the short term to suffer less in the long term?
Let me ask you a few basic questions. In a society where housing is the savings instrument for the vast majority, how great do you think loss aversion is? If house prices fall by 50% and the status quo is fundamentally finished, do you think the decision to buy a house will be more weighted towards housing as a consumption good as opposed to a road to riches?
Why - do you think it matters? That would be a question of rationality but I think our macroeconomic/household decision making have gone far beyond rational - we departed that around 2013/2015 in NZ in my opinion.
The narrative, whether acknowledged or not, has appeared to be 'well just keep dropping interest rates and raising our debt levels to avoid a recession'. Well the recession is here and we're pretty much at zero now (i.e. we're hitting our max debt servicing ability).
What happens next won't be a matter of rationality - when I see young people in their 20's and 30's buying 4,5,6-10 rental properties and they don't know how to price a bond or have never heard of the real estate bubbles in Japan, Ireland, US - I know our housing market is beyond rational.
The problem also is that if the government and Reserve Bank were to succeed in making housing a centrally-funded risk free investment class - as they are essentially attempting - why would anyone in New Zealand ever bother to build a business? Massive moral issues in the attempt, and big effects on productivity and society in NZ as a result.
Suspension of disbelief must be maintained. At least for another month. But know the beliefs of those who will in power. Perhaps with no handbrake at all. Maybe just a big Green accelerator pedal. Owner-occupied housing will be protected. But those who have leveraged themselves to invest in commercial or residential investments will be getting a hair cut. Gulag style.
RBNZ modeling indicated that rising unemployment (to what the US currently has - 15/20%) could see a 50% fall in house prices. The margins between a rising market and it completely tanking would appear to be on a knife edge - or commonly known as 'very resilient' by the property bulls.
This saving of the indebted has to stop somewhere. Let the market be the market and clean out those who have not lived within their means. A 30% drop in house prices will only take us back to 2016 or 2017 prices and if they stayed there this would a be a good thing.
The banks are licking there lips and signing new buyers to LVR loans and encouraging those whose houses have inflated to borrow. They are a disgrace. But Orr and Robertson are happy for this cycle to continue with QE printing holding it up. However if it gets bad enough in the economy the indebted wont even be able to pay back the principal no matter how low the interest rate goes and then we will all have a problem. All the while Orr and Roberston are refusing to bring in a depositors guarantee early or for a greater amount than 50k whereas Australia and the US have 250k. Since the US brought in the Federal Guarantee scheme in 1933 its cost the tax payer nothing.
Housing and share market are in opposite direction to overvall eonomic condition so either asset price has to fall to meet the fundamentals or fundamentals have to move up to meet the asset boom.
Chances of fundamentals changing but not going up but down from here so the impact should be visible by the of the year when also many stimulus ends.
"Debts that can't be paid, won't be paid".Michael Hudson. https://michael-hudson.com/
“I originally said I wouldn’t introduce a CGT while I was in office. However, we are experiencing an unprecedented 1 in 100 year shock and I believe that in order to make this country fairer for everyone, now is the time to introduce one. That’s why at 11.59pm on October 18th I will be ....” btw I think it’s a good idea, just taking a guess at the language. Be kind!
Insolvency and mortgagee auctions are a natural part of the business and personal credit cycle. Unfortunately, we have forgotten this. By the time a business or individual is facing this final stage it’s because all other options have been explored. Why would a bank throw more money at the problem? It really doesn’t help.
They will never fall. The great and groomed would rather sell the country via re-opening the only partially closed foreign buyer gate, than see their personal assets fall in value. You see our politicians are operating only in their personal interest, and/or the interests of their offshore paymasters. Elections are irrelevant because MMP enables whoever is in power to completely turn their backs on election promises. NZ vote is worthless...the groomers are in power.
This is when you likely see the rise of angry nationalism.
Positive nationalism is care for your compatriots, and is not incompatible with globalism if you're actually taking that care. But if the folk in power only sell to globalism with no regard for their compatriots, they fuel the rise of the more dangerous strain of nationalism - or indeed bitter division in society.
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