Mortgage arrears falling but hardships up

The number of home owners with their mortgages in arrears is dropping.

Although 22,000 Kiwis are still behind on their mortgage repayments, this is 1,400 fewer than in March, the latest Centrix data show.

This equates to 1.49% of the active population, down from 1.58% in March.

However, mortgage arrears at 1.45% remain higher compared with the same time last year.

Centrix managing director Keith McLaughlin says this could be the beginning of a trend.

Mortgage arrears reached an eight year high in February, with 23,700 home loans past due, a 6% year-on-year increase. But looking at seasonally adjusted mortgage delinquencies, there were signs of early arrears stabilising, McLaughlin said at the time.

He says falling interest rates are now playing into the drop in mortgage arrears. “Changes to interest rates can impact household arrears.

“As more people roll off fixed mortgage terms, they can often lock in lower interest rates as a result – freeing up more money in their household budget.”

“As more people roll off fixed mortgage terms, they can often lock in lower interest rates as a result – freeing up more money in their household budget.”

He says Centrix also typically sees arrears begin to improve after the more expensive summer break and Easter holidays.

While mortgage arrears decline, financial hardship cases are increasing.

In April they were up by 300 to 14,700, a lift of 13.3% year-on-year. However the rate of increase has eased.

Almost half (46%) of hardships relate to mortgage payment difficulties, 29% to credit card debt and 18% to personal loan repayments. 

Those aged between 35 and 49 years old are experiencing the highest rate of financial hardships.

McLaughlin says middle-aged Kiwis often face multiple financial responsibilities, such as mortgages and raising a family, and experience stress in keeping up with debt obligations while maintaining their lifestyle.

For the fourth month in a row consumer arrears fell in April to 12.43% of the credit active population, or 483,000 people. McLaughlin says is can be coined as a trend and it is hoped this will help small and medium businesses gain some traction.

However, consumers who have debts 90-plus days past due rose to 83,000, the highest level since July last year.

Consumer confidence falls

Meanwhile consumer confidence is not increasing as households take advantage of lower interest rates when their mortgages fall due for refixing.

The latest ANZ-Roy Morgan survey shows consumer confidence fell five points in May to 92.9.

In a sign of consumers feeling the pinch, perceptions of current personal finance situations fell three points to -16%.

While a net 12% of respondents believe they will be better off in a year,  this is down 11 points.

House price inflation expectations did rise, up from 3.4% to 3.6% year-on-year, with Auckland sitting at 4.1%.

“In a still-soft economy, higher household inflation expectations are unlikely to boost wage outcomes or make it meaningfully easier for firms to raise their prices,” Sharon Zollner, ANZ chief economist says.

The economy is recovering, but it just needs a bit more support with a couple of extra OCR cuts, she says.

Construction companies collapsing

Businesses are also still feeling the pinch despite the number of liquidations falling from 257 in March to 175 in April, Centrix data shows.

“This continues to be a challenging period for small to medium enterprises across the country, especially in the construction, property, and hospitality sectors,” McLaughlin says.

Construction remains one of the hardest hit sectors, with 730 companies placed in liquidation in the past year, up 48% compared with the prior year.

Construction companies now make up nearly a third of all business liquidations, and the sector’s downturn still has some way to go, BRANZ says.

Apart from the general economic downturn hitting construction hard there have been a number of other challenges making it difficult to companies to survive if they are not on a firm financial base.

Construction costs have outstripped inflation. The cost to build a house has increased by nearly 20% since mid-2022, with an average 200sq m house now costing $777,000. Over the same period when general inflation rose 12%.

Building consents for standalone houses have increased slightly, whereas consents for attached dwellings have dropped by 17%. The total value of residential building consents has fallen by 13% compared to 2023 after adjusting for inflation.

While there are now more construction businesses than ever before - 81,891 in 2024, outpacing the growth rate of all industries in the past decade, liquidations were up 37%, and made up 31% of all business liquidations.