Debt arrears are continuing to increase as "Kiwis feel the pinch", according to credit bureau Centrix.
In its latest monthly update, the bureau's managing director Keith McLaughlin says data shows that for some Kiwis, the anticipation of a recession is affecting payment behaviour.
He says many people are choosing to focus on their mortgages – due to interest rate hikes – in order to keep their largest asset well and truly secure.
"On the other hand, vehicle arrears grew for the fifth consecutive month [to 4.8%, the highest reported level since January 2021] and BNPL [buy now pay later] arrears rose to a three-year-high of 9.3% in August – suggesting that pressure is building in some corners of the economy," he said.
"Overall, the number of people behind on repayments fell month-on-month to 10.8% of the credit active population in August 2022.
"However, consumer arrears are up 8% year-on-year as economic downturn persists.
"The proportion of home loans with missed payments is up slightly at 0.98% in July, with more than 14,200 mortgage accounts past due. However, there’s little sign of mortgage stress emerging, despite the ongoing cost-of living crisis and geopolitical uncertainty."
The proportion of credit cards overdue is at record low levels and while seasonal increases in missed energy bill payments saw arrears on utility accounts rise to 4.2% in August, this is still well down on historical levels, McLaughlin said.
Demand for personal loans has resurged as Kiwis look to fund spending, while mortgage demand has fallen in line with the cooler housing market.
"Discretionary spending is also on the chopping block, with new Buy Now Pay Later (BNPL) enquiries down 27% year-on-year in September 2022," McLaughlin said.
He said while officially forecasts don’t point to a recession, it appears there are more challenging months ahead for New Zealanders.
"As always, it’s important for those at risk of missing repayments to talk to their bank or lenders as soon as possible to avoid long term financial stress."
16 Comments
Mortgage rates need to hit the 7's before the stress really kicks in. For most switched on people, they have already refixed and kicked the can down the road another 3 years. I don't think we will see many distressed sellers as long as the employment situation remains solid.
Sadly, a few people became intoxicated with money when interest rates were low. But the chicken always comes home to roost…..
Some will hit the wall at speed. It’s called market discipline and a dose of it now and again doesn’t do any harm.
The vast majority will come through with the odd bruise or two - but largely unscathed.
TTP
If a couple got a mortgage and needed both incomes to pay for this if one losses job or couple splits up, it will not take long before defaults occur. This could be a scenario replicated many time all over the country. Hardly a odd bruise these people are up to necks in debt
Vehicle arrears,no surprise really, cost of maintenance and repairs vs age of imports/ pressure to shift stock. Always gonna be some sacrifice made at some time in the vehicles life , many rebound and sure some fall off but its usually because the vehicle just isnt worth paying for anymore due to negligence or wotnot. Anticipation of a recession and Officially recognising a recession well thats where it gets bumpy.. My opinion is we are already a few months into a recession and it will deepen ...but dont tell anybody alright...lol
many people are choosing to focus on their mortgages – due to interest rate hikes – in order to keep their largest asset well and truly secure.
This is a critical point and the reason why I have said for a long time that a recession is coming in NZ, long before we will see lots of mortgagee sales, as some predict.
Tend to agree there Yvil - my experience from the US during the GFC was that mortgagee sales happen as interest rates are falling - that is because interest rates are falling after people have lost their jobs and the economy has contracted to a point where the central bank has to pivot. And the psychology of the market has shifted from FOMO to fear of loss of capital/capital protection. So falling rates take months (if not years) to reverse the course of the housing market. The bad debt is forced to vacate the market in this process.
Remember the vehicle finance companies like National Finance 2000, Western Bay Finance, Provincial Finance? They all collapsed in 2006. Long before the term GFC came into the public consciousness. History does not repeat but it does rhyme. What interest rates are the BNPL providers having to pay these days to fund their loan books?
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.