Latest RBNZ figures show the total value of non-performing housing loans is hovering around $1.9 billion as mortgage holders look towards interest rate relief in the closing months of the year

The value of non-performing housing loans has levelled off, according to the latest Reserve Bank (RBNZ) loans by asset quality figures.

The figures show as of June a total of $1.904 billion worth of housing loans (around 0.5% of the current $355.657 billion total mortgage pile) was non-performing. This is actually down on the $1.911 billion figure in May, while that figure was up only $10 million on the April figure of $1.901 billion.

So, it means that in the June quarter the non-performing housing loan figures hardly moved, which I, for one find quite surprising - particularly since the banks themselves were earlier this year estimating that the non-performing loans might hit 0.7% of the total book by the end of this year.

As some means of comparison, in the period between 2009 and 2011 the percentage of non-performing housing loans was consistently 1% or slightly higher.

After the mortgage interest rates in New Zealand started rising from historically low levels in mid-2021, the non-performing loans started rising quite quickly from very low levels.

During 2023 the total rose from $850 million to $1.517 billion.

However, following a further nearly $400 million rise to the total in the first quarter of this year, the total has levelled off, raising the question of how much more 'damage' is to come - particularly with banks now starting to push mortgage rates down again ahead of expected cuts by the RBNZ in November - if not earlier.

Of course, mortgage holders won't necessarily get instant relief from rate cuts. It depends how long they have fixed their rate for and when it comes up for a reset. And as BNZ chief economist Mike Jones has suggested, the ‘effective mortgage rate’ – the average mortgage rate being paid on outstanding debt – is currently still rising and is likely to flatten off around 6.5% towards the end of this year.

The RBNZ, which has been watching the loan figures closely, is likely to be pretty well satisfied with where things sit at the moment - given the tremendous speed at which mortgage rates went up from not much more than 2% in some instances, to well over 7% over a period of only about two years.

Also looking for relief when it comes will be commercial property borrowers, with the non-performing loan ratios in the commercial property sector having risen more strongly than those for residential property.

However, these figures too are showing signs of first levelling off, and now not actually falling.

The RBNZ figures show that as of June $450 million worth of commercial property loans were non-performing - down from $458 million in May. And since February of this year, the total has gradually dropped about $50 million.

During last year the amount of non-performing commercial property debt quadrupled to over $400 million.

In terms of business borrowing the small and medium sized businesses, SMEs, have appeared to be doing it tough and this was reflected with big rises in their non-performing debt  levels too.

The RBNZ's separate business loans by asset quality figures show that non-performing SME loans more than doubled to $758 million during 2023 and continued to rise in the early part of this year - by nearly $200 million across January and February.

However, since then the figures have levelled off. In June the total rose by $1 million to $898 million, but that's down on the $951 million peak in February.

This all begs the question then of whether we have seen the peak in non-performing loans, given that interest rates are now likely moving down again.

Of course, that doesn't mean households and businesses that have been stressed by the higher interest rates are going to be instantly relieved - particularly not with a super-sluggish economy and now rising unemployment.

It would be far too early to suggest these latest figures say definitively that 'the worst is over'. But as said further up the article, the RBNZ would probably be fairly satisfied that non-performing loan ratios have not risen to higher levels than those we have seen.