State housing in Hutt Valley (Photo: Alexander Robertson/RNZ, additional design: The Spinoff)
State housing in Hutt Valley (Photo: Alexander Robertson/RNZ, additional design: The Spinoff)

The BulletinApril 8, 2024

Growing number of homeowners falling behind on their mortgage

State housing in Hutt Valley (Photo: Alexander Robertson/RNZ, additional design: The Spinoff)
State housing in Hutt Valley (Photo: Alexander Robertson/RNZ, additional design: The Spinoff)

Banks are seeing a big rise in mortgage arrears, and some analysts believe it could force the Reserve Bank to rethink its OCR position – just not this week, writes Catherine McGregor in this excerpt from The Bulletin, The Spinoff’s morning news round-up. To receive The Bulletin in full each weekday, sign up here.

Mortgage hardship on the rise

Increasing redundancies, inflated interest rates and a stubbornly high cost of living have all contributed to a growing number of homeowners struggling to pay their mortgage. A total of 22,600 mortgage accounts were past due in February, according to credit bureau Centrix, up by 800 from the previous month and an 18% increase year-on-year. The mortgage data is part of a mixed picture for the credit-lending sector, the report shows. While the number of credit accounts in arrears dropped slightly between January and February, the level of financial hardship is going up. Year-on-year, the number of accounts in financial hardship was up by 27%, and 44% of hardships now relate to “mortgage payment difficulties”, reports 1 News. Mortgage holders struggling to keep up have some hard decisions to make. One budgeting advisor tells the Herald she’s seeing more homeowners foregoing home insurance, which puts them in breach of their loan agreement. “They’re saying, ‘well our mortgage is slightly more important than the insurance that we’re paying for our house’,” she says. “It’s just coming back to that lack of cash.”

North Island loan-holders suffering most

The Centrix report throws up some compelling data on which areas of the country are financially hurting the most. “The top 10 regions for loan arrears [of any kind] are in the North Island, with nearly one in five people in the Kawerau, Wairoa and South Waikato districts behind on at least one credit contract,” reports The Post’s Rob Stock (paywalled). While Wellingtonians experienced minimal credit pain so far, many are expecting their situation to change as public service redundancies take effect. Consumer confidence is down everywhere, but it’s dropped the most in Wellington, Westpac’s regional confidence survey finds. The same survey’s “weather report”, based on feedback from staff in the field, also shows an economic gap between the North and South Islands. Large parts of the North Island report “frosty” and “cold” economic conditions, while most of the South Island is only “cool”.

A graph from Westpac’s Regional Roundup report for April, summarising feedback from the bank’s teams around the North Island. The South Island map can be found here.

Financial stress may prompt RBNZ to act sooner

While the vast majority of mortgage holders aren’t in arrears, that doesn’t mean they aren’t under intense home loan stress. As homeowners continue to roll off lower fixed rates, the financial pain is being felt more and more broadly, impacting the Reserve Bank’s (RBNZ) plans for interest rate cuts, says Interest’s Dan Brunskill. Although RBNZ has publicly stated it doesn’t plan to cut until next year, “most economists and traders expect the economy to buckle before then and force earlier cuts,” he writes. Just don’t expect any change on Wednesday, when RBNZ’s monetary policy statement is released – commentators are agreed the official cash rate is staying at 5.5% for now. RBNZ’s expectation of monetary policy staying put for the rest of the year “seems premised on a relatively benign outlook for financial stress”, UBS economist Nic Guesnon tells Brunskill. However he thinks May’s Financial Stability Report is likely to paint a very different picture, given the upwards trend in loan arrears. That could be enough to prompt a change of tone from the Reserve Bank.

Why can’t NZ get business regulation right?

The announcement that the rules on building product standards are to be loosened has helped bring the high cost of life in New Zealand back into the headlines. Writing in The Post (paywalled), Simplicity’s Sam Stubbs says poor regulation – either too much or too little – is one of the biggest reasons that everything is so expensive here. On the “too little” side is the light-handed regulation of business, which allowed the “development of oligopoly and cartel-like behaviours in areas like banking, supermarkets and petrol”. In other ways, including building standards and resource consents, NZ is a highly over-regulated environment, he writes. “Just try setting up a school fair or farmers’ market in a public park to see just how silly many regulations are.”

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