Mortgage and loan repayment arrears rise

High interest rates and cost of living have pushed mortgage arrears to a near four year high.

The latest data from credit bureau Centrix shows the proportion of home loans in arrears rose in December, with 1.4% or 20,800 mortgages now past due, up from 1.29% in October.

This is an increase of 21% year-on-year, with many loans due to roll onto higher interest rates in the next three to six months. The last time mortgage arrears were higher was March 2020 when they hit 1.49% percentage. However, they remain historically low.

Centrix managing director Keith McLaughlin says the time of the year also has some effect. “Arrears typically spike around the holiday season. That said, it is still challenging for homeowners.”

He told the AM breakfast programme the arrears reflect what’s happened to interest rates and cost of living increases over the past 12 to 18 months.

"The sad thing is really, it's affecting one proportion of the population disproportionately to the other. So, those who took out very high mortgages at very low-interest rates to buy expensive houses… are the ones that have now been caught by the increase in interest rates.

“That’s affecting their monthly budgets and they are the ones struggling, whereas households that have paid down or paid off their mortgages may have money on deposit and will not be feeling the effect anywhere to near the same extent.”

Until recently, home loan arrears had been steadily declining since May, when they were at 1.32%, hovering between 1.25-1.26% over July to September.

Mortgage stress is expected to increase further, with 55% of existing mortgages (by value) still to be repriced to current mortgage rates in the next 12 months.

Talk of the OCR and interest rates dropping this year were put to bed this week by RBNZ’s chief economist Paul Conway who said domestic inflation was still too high and the central bank was in no hurry to alter its direction of keeping rates higher for longer to get inflation back to its target band of 1-3%.

McLaughlin says until there is interest rates or cost of living relief, households under pressure will struggle.

Meanwhile across all loans nearly half a million Kiwis are behind on payments. In December consumer arrears rose to 12.1% or 439,000 people behind on payments. This is 6.1% higher year-on-year and 4,000 higher than a month ago.

McLaughlin says this sends a worrying signal to the market.

Most Read

Get TMM delivered to your inbox each week

Sign Up