Non-performing housing loans rocketed by over 10% in the past month and the non-performing housing loans ratio has now hit a 10-year-high.
New monthly figures from the Reserve Bank (RBNZ) show that the non-performing loans rose by $161 million in January, bringing the total up to $1.678 billion.
The $1.678 billion represents 0.5% of the $350.393 billion of outstanding housing loans, which is the highest non-performing ratio seen since early 2014.
It is however, still well below the kinds of highs seen in the aftermath of the Global Financial Crisis, when the ratio got up to 1.2% between 2009 and 2011.
For much of last year the RBNZ figures appeared to show that households were mostly weathering the storm.
But there are now real signs that the rate of mortgage stress is increasing, as the substantial interest rate rises that have been seen since the second half of 2021 begin to take an ongoing, cumulative toll.
Remember, a lot of people appeared to have built good buffers financially during the pandemic period, with interest rates so low. And many people got well ahead in their mortgage payments. For at least some people these buffers may be running out.
The latest $161 million increase in the non-performing loans figure means that the total figure has increased by some $721 million - over 75% - in the past 12 months.
And the increase in January was the largest increase in a month since during the pandemic lockdown period in 2020 when there was a short-term spike in distressed mortgage lending figures.
The non-performing loans may have come off a low base (they represented just 0.2% of the total outstanding loans in November 2022), but they are now rising quickly.
And the RBNZ this week, while leaving the Official Cash Rate unchanged at 5.5%, indicated that it didn't forecast any rate reductions till next year - so mortgage rate relief doesn't look to be on the immediate horizon.
The rising stress is not just in the housing sector either.
In the summary accompanying the latest data release the RBNZ reported that in January total banking system non-performing loans rose by some $268 million (7.5%) to $3.82 billion.
This means the percentage of total loan money that's not performing is now just under 0.7%, which is the highest percentage since late 2020.
The small-to-medium-sized business sector particularly seems to be really starting to struggle with the amounts of non-performing loans rising strongly particularly in the most recent months.
As the separate data breaking out business lending shows, non-performing SME loans rose by $54 million (7.2%), to $813 million in January, with the non-performing loan ratio rising to 1.05%. The SME non-performing loans total has now virtually doubled over the past 12 months.
The RBNZ said non-performing commercial property loans rose by $11 million (2.7%). This brings the non-performing loan ratio for commercial property loans up to 0.97%.
Agriculture non-performing loans rose $49 million (5.1%) to $1.013 billion.
66 Comments
Not surprising given the huge sums people borrowed at very low rates... and all based on a low multiple of their salaries.
One would expect a high percentage of new loans issued in the last 3 years will go bad sadly. And all that FOMO driven cheap money lending will end in tears.. mortgagee sales and reduced house prices on the horizon.
https://www.rbnz.govt.nz/statistics/series/lending-and-monetary/residen…
Look at the trend of the bulk of lending over the last two years. Real terms downward pressure.
agree - would be good to see. but the stats are pretty clear..
Median household income 2023: $115,200
Borrow $1m for a house over 3 years at 3% in 2021 = $4k monthly repayments = $48k/annum.
They need to refix this will need to pay $7k monthly = $84k/annum.
Add to that likely negative equity, massively increased cost for everything, less work about to generate money and less job security .
I am guessing a lot of people are stressing
I dunno, there's a few on this site that think it's 100% the fault of young naive borrowers' for being too greedy and the banks are innocent parties in this affair. Those pesky 20 something year olds should have studied macroeconomics before taking out a mortgage and forcing the banks to test as low as 5.5%. Thankfully the banks managed to pry control back and get the test rates back up to 9%+ where they should have been all along, because it was only 12 months later when carded rates would overtake these predatory test rates.
Not sure it takes a degree in macroeconomics to work out the % increase in a loan if rates rise.
A simple online mortgage calculator would do it in 20 secs
The problem with not blaming the borrower.. is that it leads to a lack of personal accountability for others.. and more suffering.
Anyone borrowing $1m really ought to do their sums and understand their risk.... taking an hour or so to check the risk isn't really a big ask when the suffering will last years break up families and more.
For sure. So unlike the CGA that protects people from their choice to buy the cheapest fridge, we let the banks push the envelope when lending $1m to people in their 20's, and destroy their lives when rates (dictated ultimately by the banks) increase well past (in a short timeframe) the test rates? Gotchya. Would like to think society is better than that.
While we're at it, can homeowners be held liable if the electrician installs the wrong spec cable and the house burns down? Public liability insurance is expensive, it takes 20 mins to Google what should be used.
I take responsibility for my choices for which I have done very well in, particularly on selling my first home in 2021 that netted me nearly triple what we paid in 2017. It set us up in our forever home in a good central location for schools and a very comfortable mortgage at approx. 2.5 DTI.
Sure, I could have sold for less but the offer was presented at we accepted and doesn't mean I cannot look a gift horse in the mouth and question the conduct of the banks. But I mean hey, if you want to cheer for the banks and absolve them of any responsibility for reckless lending then all power to you.
The financial losses from people's decision to skimp out on the cheapest nastiest fridge, knowing full well it shouldn't be expected to last, are protected by legislation. Even more so if a product sold is not deemed not fit for purpose.
Yet, when a retail bank sells a mortgage product using questionable stress testing that after the fact is shown to be inadequate, it's the consumer's fault?
Test rates were as low as 5.5%, at what point would it not be acceptable? If the banks tested at the OCR? Probably still the borrower's fault...
The job of the bank is to sell mortgages and financial products ... like the salesman at Noel leeming sells tvs or the manager of new world sells oranges.
Banks definitely don't set rates.... they have to sell their products at the current rate to make money.. they would sell less if they put everyone off by always saying rates will go up. Rate changes are the result of local and world events and at any time a black swan event could drive inflation and thus interest rates sky high for a long time. Few people can claim to be able to manipulate them.
So and in the same way you can't blame a casino if you lose money there.. u can't blame a bank when interest rates rise.
Borrowing $1m to buy a house in a rising market is not a one way bet any more than putting $1m on black on a roulette table.
The game of life is just that.l a game.. with winners and losers... and definitely listening to basic math at school and asking questions when people sell you expensive stuff... is a mandatory part of winning.
The problem with not blaming the borrower.. is that it leads to a lack of personal accountability for others.. and more suffering.
This would be a far more apt statement in an economy where politicians and central bankers have not inflated and protected housing at every turn using policy for the last twenty years, though.
At the time, the Reserve Bank was shoveling money into the property market in case prices might fall during bad times, at an eventual huge $11 billion cost to taxpayers. The very problem in this act was the removal of personal accountability for those in property at the time, per your note... so younger Kiwis faced the question of "how much more then might the taxpayer and reserve bank choose to protect and inflate property?"
That is, in terms of personal responsibility, the government and Reserve Bank should have prioritised personal responsibility years ago and allowed price discovery downward, but had already removed that.
Very true, and we should be careful to remember the context these decisions were made within. FOMO was spreading faster than covid and the borders were shut (ish) which served as the catalyst for many to settle down. Houses were up 20%+ per year so their parents felt rich enough to put up the deposit. Zero immigration and huge domestic demand was stretching out our current account and making employers desperate to find and keep staff. It was easy to think everything was going to keep going up and you would miss out.
This scenario is popping up fairly frequently on the Personal Finance NZ subreddit (i.e. bought house at absolute top of market, could pay mortgage because rates were low, now struggling at higher rates and can't sell house to clear the debt ... plus all other costs gone up and possible job instability).
Ahem, someone will be along shortly to explain that it's the borrower's fault and nobody else's. If you don't like it, then you should change the laws because there's nothing illegal about the bank's conduct, so we shouldn't be having a discussion at all about this.
Sure, but other people's choices have an effect on how our choices turn out. It's not having it 'both ways' to think that I am responsible for my choices, and other people are responsible for theirs. So if other people make choices that end up hurting me, then blame is an appropriate part of holding people responsible for their own choices. Just like when my choices turn out well, and that is partly because other people made choices that benefited me, then I am grateful. Blame and praise are central features of holding people responsible.
This is a terrible argument.
There are 2 parties at play here, the first is an institution packed with economic and financial experts whose main role is to prevent financial system instability, have multiple tools to do so, regulatory power and can change entire markets with their decisions or even hints at their future decisions.
The second is usually a couple with basic finance expertise, who are attempting to secure a roof over their head and watching the market constantly run away from them for a decade, so have to do anything they can in order to try and secure their future.
We are currently in a situation where the former has caused the latter destruction through their incompetence. And the latter are the only ones to suffer those consequences, the former get to mark their own report card about how well they have done and get paid handsomely in return for their incompetence. Everyone at the time acted legally, but only one party had responsibility for setting the rules of the game and it certainly wasn't the struggling couple.
Yes, if we are prepared to say "individuals must take responsibility for their actions" then that necessarily includes individuals in government and reserve banking who've manipulated the market into this mess over the years. They have the responsibility and blame for their actions.
We have a lot of "smarty pants" finance people on this site that don't realize not everybody in life is as skilled or clued up as we are in economics. It's very easy to sit high up on one's ego cloud and say young people only have themselves to blame.
If "individuals must take responsibility for their actions" then why not take away the banks all together and let people borrow directly from the Reserve Bank?
Yet now the Government is bringing out legislation to protect predominately old people from responsibility for their actions when they fall victim to scams.....
Meanwhile trying to uphold our xrate against a reserve currency while the US government supports "growth" by running a massive deficit. Meanwhile in NZ, our government are trying to arm wrestle the OCR down by starving investment in anything. As these stats rise, the government want the private sector to borrow more. This is pot of gold at the end of a rainbow stuff.
Like I've been saying ... With the OCR at a seriously contractionary rate of 5.5% - when inflation in the last few quarters has been about 2% - the RBNZ are being not just stupid, but outright mean. These ghouls want people to suffer. And to suffer for no good reason. Such sadism.
Small cuts - as a wise central bank would be doing - are long overdue.
Was central government responsible for lending controls, LVR ratios, funding for lending, and OCR near zero, etc?
No. That's a function 100% controlled by the RBNZ.
The RBNZ is 100% responsible for this.
You can blame the government for lots of things.
But not this.
The RBNZ completely owns this. It is 100% their f'ck up and the chickens are coming home to roast.
Mandated target inflation.
https://www.rbnz.govt.nz/monetary-policy/about-monetary-policy/inflation
Even when the RBNZ cut rates in 2020, there was talk of deflation in NZ which would be below their target.
How realistic is the RBNZ's justifications for the "assumption" of house pricing reverting to long term mean of ~5% PA increases over the coming 3 years?
In the MPS they cite increasing immigration and an assumption about reverting to a mean... Meanwhile in the real world prices are a mixed bag with some increases and drops around with increasing mortgage delinquency.
Would price rises rely on importing people into high paying roles or sacks of cash, or property looking better than other investment options, or a shock?
Without a shock, I can't see ocr dropping substantially in the short to medium term.
Anyone else have a view of the fundamentals' trends and their potential impact?
Banks are going by extend and pretend. Already heard a couple of anecdotes on this site from some who know people in the industry, and it sounds more like they are holding on for dear life much longer than they usually should or would in order to prevent panic taking hold.
According to the news, it's all looking pretty rosy.
https://www.1news.co.nz/2024/03/01/stock-levels-hit-eight-year-high-new…
Many of the people who purchased property over the last few years are struggling with higher rates from what I can tell people having to get second jobs to make ends meet, this can be done for short period but you are always just one problem away from missing a payment ie car breaks down some are just using credit cards which will be full very quickly. Selling is only solution but many have seen house price’s drop 20% unfortunately this will lead to many more mortgagee sales.
Make that house values down 40% now in real terms, as inflation has ripped us all a new one with a 20% monetary DECLINE IN THE LAST 4 YEARS.
Much better off to be in TDs......making a little bit and lessening the massive erosion in purchasing power.
SPEUVESTERS THINKING THAT HOUSINGS A GREAT HEDGE v INFLATION - GIVES HIMSELF AN EPIC UPPERCUT!
The very, very helpfull banks have been spooling out the "Extend and Pretend" rope now for 2 years in all directions at a rate of knots...........this reel is about to be fully spooled and all goneburger.
The next shoe will drop in 2024/25. Enter Stage right.....Meet unfriendly and unhelpfull Mr Bankster.
It's the time to buy...isn't it? Look at the chart......"sell in boom, buy in gloom"....
https://www.qv.co.nz/price-index/
It might not seem an issue compared to the GFC but frankly this has happened BEFORE we have seen ANY job losses. If unemployment rises as is expected I would imagine the rate of increase in NPL's would accelerate worryingly fast. Creating a recession brings on snowball effects which may not be able to be arrested as easily as hoped.
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