Mortgage defaults improve while lending rises

That was a drop of 2.2% to $2.402 billion for non-performing loans and the biggest monthly fall for nearly five years, the latest Reserve Bank figures show.

The RBNZ’s monthly loans by asset quality data show 0.64% of the total $375 billion in outstanding mortgages is non-performing a drop from 0.66% in June.

This drop was month-on-month figures and the RBNZ says non-performing loans increased by 17.3% or $354 million year-on-year.

The last big fall in non-performing mortgages was in October 2020 after mortgage debt rose during the pandemic and then fell away.

Credit bureau Centrix latest data also shows mortgage arrears dropped for the month, from 1.58% to 1.38%, with 21,200 home loans past due, down 400 from June.

It says the rise in new mortgage lending reflects more market activity and borrowers increasingly looking to refinance for lower rates. Cashback offers also come into that equation.

A new high of $2.6 billion in mortgage money changed lenders in July.

RBNZ data shows 28.8% of homeowners holding $9 billion in mortgages switched lenders.

That is a record and over the year to July the number of new mortgages taken for a change in lender rose by 41.8 per cent.

Mortgage advisers say most of it is to do with cashbacks.

Stemming the rising tide

The rise in non-performing loans started near the end of 2022 when the RBNZ started lifting the OCR and in 2023 they reached $1.5 billion – a 78.5% increase. Last year they rose another 42.6% to $2.1 billion.

Since then, as lower interest rates have started to flow through to households and they have been able to stem the rising tide of non-performing loans.

With about 41% of mortgages still to roll onto lower rates in the next six months it can be expected the level of non-performing loans will decline further.

Over that period unemployment will be a big factor in how far that decline will go and the level of mortgage lending activity, advisers say.

Still on struggle street

Centrix says while some indicators are improving, many households and businesses continue to struggle.

Defaults on vehicle loans, credit cards, personal loans, telco/broadband, BNPL have improved, but the number of people in shorter-term arrears rose by 2,000 during July to 480,000, 12.4% of the "credit-active population”.

On the business front credit defaults rose by 8% year-on-year, but that rate is declining.

"The manufacturing industry is the worst hit, with credit defaults up 19% year-on-year, followed by the property/rental sector with credit defaults up 13% compared to the same period last year," Centrix says.

Company liquidations have surged, up 26% year-on-year, partly reflecting stronger IRD enforcement activity.

There have been 765 liquidations over the past year in the construction industry, up 46%, and 297 in hospitality, up 49%, Centrix says.