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Home loan arrears rising

Signs of stress are emerging in New Zealand’s housing market, with the number of people behind on loan repayments jumping as soaring interest rates bite.

Wednesday, May 3rd 2023, 8:55AM

Credit reporting agency Centrix’s data show mortgage arrears rose for the eighth consecutive month in March, with 19,300, or 1.31%, of residential mortgages past due, up 26% year-on-year.

In addition, new mortgage lending was down 48% year-on-year in March, while new mortgage enquiries were down 15% year-on-year in the last month.

Centrix managing director Keith McLaughlin says the ongoing cost-of-living crisis continues to impact the property market.

“The housing market downturn still lingers in many regions and while mortgage arrears are up they are still low by historic standards.”

Some of the home lending arrears can be put down to borrowers rolling off fixed home loans and being unable to service higher interest rates.

The rise in home loan arrears is against the trend of recent years. Over the past three to five years arrears on home lending had been falling steadily. However, it has now reversed. 

Worst bubble

New Zealand had one of the most pronounced housing bubbles when rates tumbled during the pandemic, with prices jumping 40% in two years during the pandemic.

But there has been an abrupt change since the Reserve Bank became one of the first central banks in the world to start unwinding stimulus.

House prices are now down 16- plus from their peak in November 2021, with the RBNZ predicting they will fall 23% by early next year. However, some banks are now revising their predictions of 20%-plus house falls. The ANZ is already forecasting it will drop back to 18%.

Another factor is that the RBNZ estimates about half the stock of fixed-rate home loans are due to reprice in the next 12 months. ANZ says it is seeing an increase in financial hardship numbers in line with industry figures and has set up a team to monitor customers for signs they are coming under financial pressure. However, it says the majority of customers are in a sound financial position.

Balance sheets remain resilient

Meanwhile, the country’s banking system remains resilient as loans to households and businesses steadily reprice to higher interest rates, says Christian Hawkesby, RBNZ deputy governor.

Debt servicing costs have risen significantly from historically low levels during the pandemic. For households with a mortgage, the share of disposable income required to service the interest component of their mortgage debt is expected to more than double from its recent low of 9% to about 22% by the end of this year, he says.

Despite this, household balance sheets remain resilient in aggregate, with most households with a mortgage still having substantial equity buffers – in part due to the impact of previous loan-to-value ratio restrictions.

“Although early-stage arrears have been increasing in recent months, this takes them back to where they were before the pandemic, and they remain low when compared to the period following the Global Financial Crisis,” Hawkesby says.

“We are not seeing widespread financial distress amongst households or businesses, which reflects the strength in the economy and labour market to date.

“However, more borrowers may fall behind on their payments this year, given the ongoing repricing of mortgages and expected weakening in the labour market,” Hawkesby says.

“Recent profitability and strong capital positions puts banks in a good position to take a long-term view and support their customers.”

The RBNZ is encouraging borrowers encountering stress to talk to their banks, as hardship programmes may be available, and some customers may be able to temporarily switch to interest-only payments or increase the remaining term of their loan.

Tags: home loans

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 ▼6.75 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 ▼6.75 6.65
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 - 7.24 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 7.84 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 - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 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 6.69 6.45 6.19
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 6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.35 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.75 6.65
Median 8.64 7.29 7.32 6.65

Last updated: 8 April 2024 9:21am

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