Financial pressures mount
As the challenging economic climate continues, consumers looking to purchase a motor vehicle are urged to shop around and rethink whether “putting it on the mortgage” is the best idea.
New data from credit reporting agency Centrix showed mortgage arrears are up 12% year-on-year, while vehicle loan arrears dropped to 5.5% in May, compared to 5.7% in 2023.
Risks of topping up mortgages
Lyn McMorran (pictured above), executive director of the Financial Services Federation (FSF), warns against adding vehicle purchases to mortgages.
“Adding a vehicle to a mortgage that still has 20-plus years to run with fluctuating interest can mean a borrower ends up paying many times more in interest than they originally borrowed,” she said.
This approach can lead to paying for an asset long after its useful life has ended.
Financial pressures and consumer arrears
Centrix data indicated that overall arrears are trending upwards, although they are coming off a relatively low base from the COVID period.
“During the COVID period, we saw arrears hit a remarkable low as people prioritised paying down debt over overseas holidays,” McMorran said.
“The challenging economic climate continues to persist,” said Keith McLaughlin, managing director of Centrix. “Consumer arrears climbed last month, largely driven by telco and mortgage repayments, as pressure from the cost-of-living crisis endures.”
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Regional Disparities in arrears
The number of consumers in arrears rose to 12.64% of the credit-active population in May, up from 12.52% the previous month.
Districts across the central North Island, such as Wairoa and Kawerau, were hardest hit, showing double the level of arrears compared to areas like Nelson City and Wellington.
Mortgage lending and financial hardship
Despite rising mortgage arrears, new lending remains strong, reflecting pent-up demand in the housing market. Mortgage repayment difficulties make up almost half of the reported financial hardships, with the highest rates among those aged 35 to 39 years old.
Business liquidations and economic tensions
Company defaults and liquidations increased in May, with 233 companies placed in liquidation – the highest May figure since 2014.
Retail trade and property/rental sectors experienced the largest increases.
“Business credit defaults have also risen year-on-year, indicating overarching economic tension,” McLaughlin said.
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