Rising mortgage arrears amidst enhanced bank support
As mortgage arrears rise in NZ, banks are curbing mortgagee sales and enhancing dialogue to address widespread mortgage stress.
Rising mortgage arrears amidst enhanced bank support
Recent data from Centrix revealed a 7% increase in mortgage arrears across New Zealand over the past year, indicating more homeowners are struggling with their loan repayments.
As of December, 1.5% of mortgage lending was in arrears, up from 1.41% the previous month, translating into 22,100 mortgages overdue, an increase of 1,100 from November, RNZ reported.
Understanding mortgagee sales
Despite the increasing arrears, the number of mortgagee sales remains unusually low due to evolving bank strategies.
Mortgagee sales often occur when a property owner cannot meet their mortgage repayment obligations. In such cases, the mortgagee (usually a bank) may have to sell the property to recover the funds.
A shift in handling financial hardships
The rise in financial hardships, up 19% year-on-year, is notably concentrated on mortgage repayments.
However, Keith McLaughlin (pictured above left), managing director at Centrix, pointed out that the situation isn’t deteriorating significantly.
“It’s been sitting around that level for the last 12 months,” McLaughlin said, suggesting a stabilisation in arrears despite the upticks.
Adding to this perspective, FAMNZ’s 2024 Consumer Access to Mortgages report found that nearly 60% of New Zealand mortgage holders may be experiencing mortgage stress, defined as paying 30% or more of household income toward mortgage repayments.
Effective communication reduces mortgagee sales
McLaughlin credits enhanced dialogue between lenders and borrowers as the key factor preventing the rise in mortgagee sales.
“Banks don’t want to go to mortgagee sale,” he told RNZ. “If they can restructure it or get the repayment deferred or even encourage the borrower to put it on the market themselves, rather than put it through mortgagee sale. There’s a lot more communication and negotiation around that.”
Economic outlook and future projections
While the current figures show stability, Kelvin Davidson (pictured above right), chief property economist at CoreLogic, warned that it’s too early to assume mortgagee sales have peaked.
“After all, we’re probably going to see unemployment rise a bit further yet,” Davidson said.
Nonetheless, the proactive measures by banks and the cautious attitude of borrowers are contributing to fewer distress sales compared to past cycles.
Increasing demand for financial guidance
A spokesperson from Fincap, a national network of financial mentors, highlighted an uptick in people seeking help with mortgage stress. This trend has been growing since 2021, often after borrowers have exhausted all other options. The increasing reliance on financial mentors underscores the challenges many face, despite a slight decrease in interest rates, RNZ reported.
