Downturn in home loan volumes continues

As numbers of missed mortgage repayments rises, says Centrix

Downturn in home loan volumes continues

New residential lending continues trending down, falling 36% year-on-year during October as the economic climate remains a barrier for many aspiring homeowners.

Meanwhile, new consumer lending is up 6% year-on-year, which is an upward trend observed during the final months of 2022 as New Zealanders increasingly turn to credit to help support household spending.

“The proportion of home loans with missed repayments has risen for the third month in a row, with 15,200 mortgage accounts currently past their due date,” said Centrix managing director Keith McLaughlin (pictured above).

“While this rise is concerning, this figure is still low compared to pre-pandemic levels and comes after a period of historically low home loan arrears. Arrears on vehicle loans also rose in October 2022 to 4.7%, the fifth increase in the last six months.”

Credit bureau Centrix has released its final Credit Indicator for 2022 and found demand for consumer credit continues to rise. Centrix said consumer credit arrears are swinging upwards as the number of people falling behind on loan repayments climbed 5% year-on-year in October, with 75% of credit providers have reported higher arrears in October compared to September.

“Last week, the Reserve Bank increased the official cash rate by 75 basis points to 4.25% to try to rein in inflation, with whispers of this figure climbing even further in 2023,” he said.

“It seems increasingly likely Kiwis are staring down the barrel of an engineered recession to curb inflation and help settle the current economic climate. However, the present situation for many households appears to show the day-to-day struggle of inflation and the impacts on the cost of living.”

McLaughlin said 4.2% of credit active consumers were currently 30+ days past due (up from 4.0% in September), while 2.3% of consumers were currently 90+ days past due (unchanged from September) as consumer credit defaults were also up 21% year-on-year.

“The demand for consumer credit remains high as Kiwis continue to grapple with inflation and the rising cost of living in the face of the festive Christmas period. Personal loan demand was up 18.1% year-on-year, while vehicle loan demand was also up 17.3% year-on-year.”

McLaughlin said Centrix recorded arrears climbing in October as  people struggled to meet their repayment commitments across a range of credit products.

“While arrears were climbing, demand for consumer credit also grew as Kiwis continue to turn to new avenues to make ends meet. New consumer lending has climbed for the last three months and the looming festive season is likely to be a source of stress for many who are already dialling back their discretionary spending,” he said.

“In fact, we’re seeing those who generally live on a tight budget and young borrowers feel the pinch the most – forced to cut back on non-essential spending due to cost-of-living pressures and other external factors.”

McLaughlin said as consumer confidence continued dwindling, rising costs resulted in an increase in business defaults across multiple sectors. 

“We have found the hospitality and tourism sectors have seen some great activity as international travellers return to New Zealand, bringing a much-needed economic injection to these industries,” he said.

“Looking forward, it seems likely Kiwis are in for some financially challenging months ahead. For those who are struggling to keep up with their payment obligations, it’s important to be proactive when it comes to planning. Reaching out to lenders early to organise a repayment plan is far better in the long term than simply missing repayments and potentially causing long-term ramifications for you and your financial future.”