Centrix data highlights rising household financial pressures
In February, the OCR was cut by 50 basis points to 3.75%, prompting many major banks to lower their interest rates, potentially easing financial pressures on households as inflation eases.
However, despite expectations for further OCR cuts, the economic climate continues to pose challenges for numerous New Zealand households and businesses.
Arrears and consumer debt concerns
Keith McLaughlin (pictured), Centrix managing director, highlighted a seasonal increase in mortgage arrears, which typically peak post-holiday season.
Although arrears are 3% lower year-on-year, marking an improvement for the first time since December 2021, mortgage arrears have reached an eight-year high with 23,700 home loans reported past due, a 6% year-on-year increase.
“It will be interesting to see how changes to interest rates across the banks impact these figures as the year progresses,” McLaughlin said.
Gareth Kiernan from Infometrics anticipates additional rate cuts, especially for shorter-term fixed rates, in the coming weeks.
Consumer credit sectors show mixed trends; personal loan arrears climbed to 9.7% in January, while Buy Now Pay Later (BNPL) arrears rose to 8.6%.
Additionally, retail energy payment arrears and telecommunications arrears increased to 5.2% and 10.7% respectively, Centrix data showed.
Increasing financial hardships
The financial hardship rate is at its highest since June 2020, with 14,700 accounts reported in hardship, a 20% year-on-year increase. Among these, significant proportions are related to mortgage payments (46%), credit card debt (30%), and personal loans (16%).
Credit demand and lending growth
Consumer credit demand has remained relatively stable, with only a slight 0.5% decrease year-to-date. However, mortgage applications have seen a notable increase of 11%, and credit card demand has risen by 24% year-on-year, Centrix data showed.
In the January quarter, new mortgage lending surged by 17.7%, and non-mortgage lending grew by 4.3%, reflecting a responsive market to lower interest rates and relaxed lending restrictions.
Business credit strain: Rising defaults and liquidations
New Zealand business credit trends are troubling, with company defaults rising across all sectors, particularly in construction and transport. Liquidations have spiked by 38% over the past year, with significant increases in both the North and South Islands. The professional sector also faced challenges, with a 45% increase in company liquidations.
Cautious optimism amidst challenges
The financial trends indicated that while there is some optimism due to lower interest rates, the underlying economic conditions remain precarious.
Stakeholders, particularly in the housing market, should prepare for a fluctuating financial landscape as further economic data becomes available, Centrix reported.
For more details, read the full Centrix report.
