Meanwhile, new mortgage lending is down 27%  

People falling behind on mortgage payments has increased, which is unsurprising given the gathering economic storm clouds. Read on to learn more and learn what mortgage rates might do next.

The number of households behind on their loan repayments has exceeded 2019 levels for the first time, a latest report from Centrix shows.

According to the Centrix June Credit Indicator report, consumer arrears are up four percent year on year, with 426,000 Kiwis behind on their loan repayments – up 15,000 month-on-month.

Centrix noted that 11.7% of the active credit population were behind on repayments, with double-digit arrears for unsecured personal loans (10%) and buy now pay later accounts (10.4%).

Mortgage delinquencies have increased by 1.32%, with 19,500 households behind in their mortgages, up 34% year on year. This was the highest level reported since the start of the pandemic in March 2020, Centrix said.

The June data represents a turnaround from the previous figures, which showed the number of mortgages in arrears retreated to 19,000.

Centrix managing director Keith McLaughlin said arrears typically rose over the Christmas period and started to fall around the middle of the year.

“The trend has reversed – they’re going up – which is a concern,” he said.

McLaughlin said that the effects of rising interest rates, and uncertainty around the cost of living were still a concern for borrowers.

The Backdrop

Record low interest rates, government spending and businesses’ demand for employees sent inflation soaring above the norm. This has created what many are calling a cost-of-living crisis.

This forced the Reserve Bank to increase interest rates to slow down the economy. In case you missed it, over the past two years, average mortgage rates have more than doubled.

The impact for anyone with a mortgage is less cash in your pocket as you pay more in interest.

New Mortgage Lending Down 27%

Centrix figures also showed new mortgage lending was down 27% year on year, reflecting the increase in interest rates and the challenges of obtaining a mortgage with the updated CCCFA regulations, which took hold in late 2021.

In addition to consumer lending and mortgages, credit defaults climbed in the business sector, with overall company liquidations up 35% year on year. Centrix said a climb in credit defaults was seen across several business sectors, including the property or rental industry, hospitality, retail trade and construction. This doesn’t bode well for job security: it seems the pain of the recession might still be about to hit the New Zealand economy.

Where Next for Mortgage Rates?

Only time will tell how interest rates will change in the future. However, it always helps to monitor and analyse the economy and policy decisions in real-time, so you can make better investment decisions and plan for potential changes in interest rates. Better still, listen to the experts and economists who monitor this sort of thing very closely – in this case they mostly think mortgage interest rates are at-or-near their peak. In other words, mortgage interest rates should stabilise or even start to fall over the next three to six months.

Until they do, mortgage arrears are likely to stay at the same high level, or get even higher.

The Bottom Line: Mortgage Lending Falls

It’s clear there’s an increase in those among us who can’t afford to repay their mortgage. These numbers are likely to increase as cost-of-living pressures, higher interest rates, and recession-related matters such as business failures and layoffs increase financial pressure.

If you’d like to discuss how anything above might impact you, or how you can best navigate your mortgage or lending situation, please drop us a line and we’ll get back to you within a workday.