Credit arrears hit a seven-year high in January and were up 9.6% year-on-year, according to credit bureau Centrix.
The arrears are at the highest level since February 2017.
Centrix managing director Keith McLaughlin said in the company's latest monthly Credit Indicator that the rise in credit arrears reflected seasonality following the festive season and summer holiday break.
"There are 480,000 consumers across the country in arrears," he said.
McLaughlin also noted that the percentage of mortgages in arrears climbed to 1.47% in January 2024, up from 1.40% in December and reaching the highest level reported since pre-Covid.
This equates to over 21,800 mortgage accounts past due, up 16% year-on-year.
Separately, Reserve Bank (RBNZ) figures for January released last week showed that the amount of non-performing mortgages had risen by over 10% in the month.
McLaughlin said the percentage of vehicle loans in arrears also climbed - to 6.0% in January, up 5.0% year-on-year. Credit card arrears also rose to 4.9% - "although this remains low compared to historical levels".
"Interestingly, telco/communications arrears have reached a new high of 11.7% as households fall behind on these account repayments. Personal loans and Buy Now Pay Later arrears also climbed to 9.9% and 9.0% respectively," he said.
Kiwi businesses saw defaults and liquidations climb overall in January 2024, with retail trade seeing the biggest number of liquidations followed by construction, hospitality and transport. Overall business defaults were up 28% year-on-year in January 2024, while company liquidations were up 16% over the same period.
"We’ve also observed an upswing in mortgage stress for a sole proprietor [of a business], with many needing to leverage their home equity to continue funding their businesses – a concerning trend that could spell trouble for these owners in the long term.
"It’s clear the cost-of-living is continuing to impact Kiwi households and businesses across the country."
McLaughlin said the financial strain "skews towards the younger demographics".
"Those under 25 years old are more prone to cash flow problems due to likely lower incomes, limited savings and less financial experience.
"We are now starting to see the squeeze flow onto 30-40 year olds, who are likely more financially stable but have perhaps used their buffers."
McLaughlin said that alongside climbing arrears, demand for credit was also up in February 2024. This was driven by increased interest in credit cards and Buy Now Pay Later products.
There was also an uptick in mortgage enquiries, which could point towards a warming of the real estate market in 2024.
43 Comments
This is info the Banks and REAs do not want disclosed!
-Their rampant greed over the last 6 years is coming home to roost and many will be liquidated as a result........for the people, it will be a crash landing in flames.
We will have 25,000+ delinquent mortgages later in 2024.....
The banks giving out rope "extend and pretend" will end soon, as the reel is fully spooled.
-Their rampant greed over the last 6 years is coming home to roost...
Wrong. Banks creating credit to speculate on house prices has been going on for waaayyy longer than 6 years. More like 30 years. The sheeple have been led to believe that banks have just been acting as financial intermediaries. They don't understand that this has been pure expansion of the money supply.
Exactly, everyone should be familiar with this chart, set it to maximum and there is your exact reason why house prices double every 10 years.
https://tradingeconomics.com/new-zealand/money-supply-m3#:~:text=Money%…
Due to globalisation and .the shifting of global manufacturing to China, we have got away with this without significant inflation or a collapse in the USD for close to 40 years.
Those days are gone, never to return.
Agree since the 1980s houses have been outpacing average earnings. It could not go on..... but it did for 40 years until 2021.
Then from 2012 this had housing even further disconnect from average earnings and again from the last 6 years, it went up another gear.
It could not go on..... but it did for 40 years until 2021.
Go to max:
New Zealand Residential Average Sale Price (tradingeconomics.com)
So detached from average household earnings and rental earnings.
This Market had been bid up into the sky........now there is daylight under it and its collapsing. Like the Roadrunner birdie running in the air.....
It's in the most epic reset of our lifetimes now, much larger drops are due in 2024-2026. These crashes take on average - 6 years to hit bottom....
Banks continue to protect their loan books by ongoing extend and pretend on delinquent mortgages. Circa 480000 if news is correct. Banks must indeed be scared witless, scared of the ponzi unraveling. Key moving on may be a big sign.
Time for those holding their shares time to exit me thinks.
2024 and into 2025 is going to see the real pressure come on people. Many have been trying to keep their heads above water while dealing with these higher rates and the higher cost of living. Many using their savings to stay afloat.
With the last chunk of mortgage holders refixing into higher rates this year, interest rate lag effect kicking in for the current refixed higher rate borrowers, higher cost of living, dwindling savings and increases in unemployment, the worst is yet to come for the NZ economy.
Lots of geopolitical risks as well which could impact NZ which we need to keep an eye on. It really is a volatile environment out there. These tough periods won't last forever though but we are in for a bumpy ride ahead.
Probably there are a lot of people who over-extended themselves and bought into a lifestyle they couldn't afford to keep up. Remember that during covid there was often a belief that the world that many of these new trends would be permanent, whether they be economic or lifestyle ones.
"Those under 25 years old are more prone to cash flow problems due to likely lower incomes, limited savings and less financial experience.
"We are now starting to see the squeeze flow onto 30-40 year olds, who are likely more financially stable but have perhaps used their buffers."
The financial stress by age group is pretty stark.
Arguably those that had more opportunity to take advantage of long term asset price increases and purchase them at lower DTI's, and when more resources were available and hence cheaper in relative terms, have far more equity to borrow against and hence less financial stress if interest rates rise. This leaves younger business owners whom many will have borrowed against their family home to fund their business, far more prone to financial stress as it is more likely that family home was a higher relative DTI than those in older age brackets who did the same thing.
Before people get carried away in a doom loop, step back and consider the role of the RBNZ.
The RBNZ remit is to ensure financial stability.
At present the OCR is contractionary at 5.5%.
Inflation over the last two quarters (3?) has been within the 1-3% range.
The RBNZ considers a neutral OCR to be about 2.75%.
That means the RBNZ can cut between 2.75% (to neutral) and 3.0% (slightly stimulatory) and suddenly everything changes. Note I said "changes". I am not suggesting it would change for the better.
The time for OCR cuts was last November. Last week would have been good too. April will be too late, as will May. Had the RBNZ done two cuts of 0.25% further damage could have been minimized while 0.5% below current retail mortgage rates (~7.0%) isn't enough to start another property frenzy.
RBNZ seems to be signaling. First a message to the banks to consider their margins. Then a plea to Stats NZ to get the CPI data out faster and more accurately. The beating drums are so loud now they can be heard from inside the top floors of the RBNZ. Just waiting on an excuse to cut now. With a pile of forex cash on standby to stop the dollar falling too hard when they do.
Like I said - a 0.25% cut in November 2023 was the time to do it.
The vultures would have taken little or no interest as further cutting could have been spread over a much longer period - and would most likely have come at uneven and less predictable intervals - thereby eliminating the potential of the 'short squeeze'. With every MPS since passing without a cut just lines up more vultures waiting for the inevitable larger cuts. The RBNZ's MPC needs to get some real currency traders to help them. Economists think long term. Traders think in the near, and very near, term.
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