Mortgage arrears retreat for first time in eight months

Borrowers are starting to adapt, says Centrix

Mortgage arrears retreat for first time in eight months

The number of mortgages in arrears has dropped for the first time in eight months, the latest report from Centrix shows.

And while demand for credit products has climbed across the board, the two exceptions are mortgage lending and buy now pay later lending.

According to the May Centrix Credit Indicator report released on Wednesday, the number of mortgages reported past due has declined to 19,000 (1.27%).

It follows eight months of rises, Centrix said, noting that arrears were still up by 25% year-on-year. The report showed that the areas with the highest arrears were Ōpōtiki (2.94%), Hauraki (2.75%) and Southern Taranaki (2.60%) while Wellington City recorded the lowest rate of arrears (0.80%).

New mortgage borrowing (new personal mortgages, including for alterations and extensions) was  down 28% year-on-year, which Centrix said could be a reflection of fewer property listings. Demand for new mortgage remained low, with home loan applications down 13% year-on-year.

Centrix managing director Keith McLaughlin (pictured above) told NZ Adviser that overall, Kiwis were good at paying their accounts.

Although official cash rate hikes are still flowing through to borrowers including those rolling off lower fixed interest rates, the improvement in mortgage arrears is likely due to people starting to make some adjustments to their spending, he said.

When a person receives a pay rise, McLaughlin acknowledged that what typically happens is that the higher income is quickly absorbed into the budget. When a fixed cost (such as a mortgage repayment) increases, it takes people a lot longer to adjust their lifestyle to live on less money, he said.

“As the pressure went on household budgets with the cost of living and increase in interest rates, I think people were still spending as if there was no impact,” McLaughlin said.

“There’s still 19,000 mortgages in arrears but I think the market is starting to adjust … their discretionary spending has pulled back.”

As a mortgage is viewed as a significant financial commitment, McLaughlin commented that often the first bill to be paid is the mortgage, while the second is the motor vehicle loan.

“We prioritise what we pay because we don’t want to lose the house,” he said.

Referring to the 28% annual fall in new mortgage lending, McLaughlin noted that volumes reflected the level of activity in the real estate market, which in turn had been influenced by economic factors such as rising interest rates.

Referring to a Barfoot & Thompson April Market update as a guide, McLaughlin acknowledged that property sales (473) were down by 23.1% year-on-year, while new listings (1,090) were down 16.3%.

“We follow the market to some extent and the market has been quite soft where new sales are concerned, and that reflects on the numbers,” McLaughlin said.

Overall, consumer arrears (411,000) fell to 11.3% of the active credit population. After reaching a record-high in March, buy now pay later arrears declined to 9.9%.

Arrears for credit card and unsecured consumer loans fell month-on-month, to 4.7% and 9.1% respectively.

Vehicle loans were the only type of credit where arrears increased, up 5.2% month-on-month, and up 24% year-on-year.

Non-mortgage lending was up by 4.1% year-on-year, which Centrix said was largely driven by the increased growth in vehicle financing.

Demand for credit products rose year-on-year, led by an increase in applications for credit cards (up 25.1%), auto loans (up 9.3%), personal loans (up 6.4%) and energy utilities (up 6.6%). Buy now pay later applications were down 3.8% year-on-year.