Household caution deepens as unemployment rises and new mortgage lending falls sharply
New Zealand's mortgage market is showing early signs of strain as banks lift home loan rates and unemployment climbs, even though overall credit performance remains healthier than a year ago, according to Centrix's latest Credit Indicator report.
Arrears edge higher as rate cycle turns
Residential mortgage arrears rose slightly to 1.22% in July, up from 1.20% in June, with roughly 19,900 home loans now reported past due. Despite the monthly uptick, that figure sits 12% below where it was a year ago, and seasonally adjusted delinquencies — both early-stage arrears and those 90-plus days overdue — are down 15% year-on-year.
Centrix chief operating officer Monika Lacey (pictured) noted that recent rate increases by several banks serve as a reminder that many households are still navigating a difficult financial environment, and that the country is moving into a fresh interest rate hike cycle.
The Reserve Bank has already delivered on that: it lifted the OCR to 2.5% in July — its first hike in three years — with fixed mortgage rates between two and five years already above 5%. Economists widely expect a second consecutive increase, to 2.75%, at its meeting on 2 September.
Adding to that strain, New Zealand's unemployment rate rose to 5.6% in the June quarter, weighing further on household confidence and borrowing appetite.
New lending slows sharply despite rising mortgage enquiries
Even as arrears remain contained, new mortgage activity has cooled. Approved new mortgage lending fell 11.6% year-on-year during the July quarter, pulling overall new household lending down 10.5%, driven largely by weaker residential mortgage volumes. Non-mortgage lending bucked the trend, rising 4.9%, supported by continued growth in secured vehicle finance.
The slowdown in approvals comes despite mortgage enquiries actually climbing 14.9% year-on-year — a gap that points to tighter approval conditions or more cautious borrower follow-through rather than a lack of interest.
Refinancing activity, meanwhile, remains at record levels, suggesting existing borrowers are actively shopping for better terms as rates shift.
Hardship pressure building among borrowers
Financial hardship data adds further texture: mortgages remain the largest category of hardship cases nationally, accounting for 38% of the total, ahead of credit cards at 32%.
Lacey pointed out that for borrowers who do enter formal hardship, the road back to their previous credit position is typically slow, generally taking two to three years.
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