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Bank profits level out – mortgage arrears rise

Debt servicing is taking nearly 22% of an average household’s budget once their mortgage is rolled over to a higher rate.

Thursday, April 20th 2023, 8:00AM

This means higher mortgage arrears, just as the latest KMPG report on the banking sector points out that the major banks’ record profits could be over.   

Banks and households are being hit by continuing high inflation, a rising OCR, house prices that have yet to bottom out and an RBNZ-engineered recession.

KPMG’s Financial Institutions Performance Survey (FIPS) shows profits for the banking sector’s December quarter have already levelled off, with earnings of $1.77 billion unchanged from the September quarter.

Lower gains on hedging, fees and commissions contributed to a drop of $166 million in banks’ non-interest income for the quarter.

As Kiwi households brace for the same impacts as the banking sector, stress is already starting to tell.

Some households have moved on to mortgage interest rates well above what they were initially tested at.

The existing average mortgage rate is sitting at 4.5%, however, about half of all home loans are set to be repriced over the next 12 months at an average rate of 6.5%, meaning there will be higher repayment arrears.

Centrix Group managing director Keith McLaughlin, writing in the KPMG’s report, says climbing mortgage arrears are a clear indication rising interest rates are beginning to take a toll on Kiwi households.

“Mortgage arrears rose for the seventh consecutive month in February, which is out of line with seasonal trends observed most years. In fact, 1.29% of mortgages – or 18,900 – were recorded past due in February. This is up 23% year-on-year and could be attributed to people rolling off fixed home loans and being unable to service higher interest rates.”

McLaughlin says this is a concerning trend to observe, but it is too early to tell if this translates into increased mortgage defaults in the coming months. He says the housing market continues to grapple with the ongoing downturn in activity.

“When considered alongside mortgage arrears figures, the overall slowdown of the real estate market appears to point towards the broader economic sentiment of many households.”

Those who took out mortgages at the height of the market are experiencing increased financial stress as arrears climb, says McLaughlin.

Another interesting out take is the rise of interest-only mortgages, which grew in January this year to make up 3.93% of all residential mortgages compared to 3.63% in January last year.

As this figure grows, so to do the number of interest-only mortgages in arrears, climbing from 0.55% in January last year to 0.85% in January this year – a 54% year-on-year increase.

Tags: banks

« Mortgage payments rearranged as living costs spiral Buy now Alexander tells advisers »

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank 8.74 7.74 7.09 6.95
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 7.14 6.49 6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Lender Flt 1yr 2yr 3yr
Westpac 8.64 ▼7.49 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - ▼6.89 6.75 6.39
Median 8.64 7.14 6.82 6.65

Last updated: 11 July 2024 1:26pm

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