The percentage of borrowers behind on their payments has hit the highest level in five years, with the remainder of the year expected to remain challenging.
Centrix today released its Credit Indicator report covering July, which revealed consumer arrears climbed back up to levels not seen since 2018, with 11.7 per cent of the credit active population now behind on payments.
The number of people behind on payments in July was 426,000, up from 414,000 in June.
Centrix managing director Keith McLaughlin told the Herald there was a growing amount of pain for those under 25.
Debt stress for those under 25 years old – which account for over 260,000 of credit-active consumers – was 21 per cent higher since the beginning of 2020.
“Active credit consumers aged under 25 appear to be struggling quite consistently in recent years,” McLaughlin said.
“The debt stress for the demographic has seen noteworthy growth since pre-pandemic times, with credit such as telco and personal loans going into arrears ahead of BNPL [buy now, pay later] and credit cards.”
Arrears for under-25s for personal loans and credit cards were 12.3 per cent and 9.1 per cent, respectively.
This compared to arrears for over 50s of 6.4 per cent for personal loans and 3 per cent for credit cards.
“When you look at the rising cost of living compared to average income and expenses, it’s clear there’s a growing amount of pain for those under 25,” McLaughlin said.
“Younger consumers are more impacted by the current cost of living crisis. The young generation often live from pay cheque to pay cheque, having much lower savings than older generations to draw on in times of debt stress.
“As you get older, you tend to see more concrete, robust income and living situations with less uncertainty,” he said.
Overall, personal loan arrears rose 9 per cent in July when compared with the prior month and are up 17 per cent year on year.
In a sign of the times, new personal loan activity was currently at its highest level this year to date, McLaughlin said.
Credit card demand is up 24.6 per cent year on year.
“As the current economic environment remains difficult for consumers, more people are turning to short-term lending options,” McLaughlin said.
Meanwhile, homeowners appear to be coping with servicing higher mortgages at the moment.
Mortgage arrears fell slightly for the second consecutive month with the proportion of loans in arrears in July at 1.26 per cent, down from 1.29 per cent in June.
There were 18,800 mortgage accounts past due, up 31 per cent compared to July last year.
But McLaughlin said while mortgage arrears are improving slightly at the moment, the figures were in line with seasonal trends and weren’t expected to continue to track lower.
“We expect mortgage arrears to continue to rise in the fourth quarter of this year and into [the] next,” he said.
“There is still a significant proportion of residential mortgages that are scheduled to be repriced in the next six to 12 months. These loans will likely be repriced from a 2-4 per cent interest rate range to 6-7 per cent, which will further squeeze household cash flows.”
Stuart Baxter, general manager of analytics at Centrix, added mortgage delinquencies for the under-30 segment had been rising much faster in recent months than any other age group.
Business defaults and liquidations also continued to climb higher.
“Both credit defaults and company liquidations were up across the board year on year as the realities of the current climate continue to impact Kiwi businesses,” McLaughlin said.
July was the second-highest month for company liquidations with 181, according to Centrix’s figures.
So far there have been 1020 company liquidations as of the end of July, higher than the 785 liquidations for the same seven months last year.
There were 1573 liquidations for all of 2022. However, those figures remain below pre-pandemic levels.
Year on year, liquidations were led by construction, with a 73 per cent climb, followed by transport (+52 per cent), retail trade (+42 per cent), hospitality (+22 per cent) and property and rental (+17 per cent).
Business credit defaults were up 38 per cent year on year, led by the property and rental sector (+62 per cent), retail trade (+45 per cent), construction (+34 per cent), hospitality (+30 per cent) and transport (+22 per cent).
However, yesterday’s ANZ Business Outlook survey showed confidence was up and inflation expectations down.
Business confidence lifted another nine points in August to -4, the highest read since mid-2021. Expected own activity also jumped 10 points to +11.
“Perhaps this is a sign of settling into a new financial situation for our country, as we can properly assess how things will shape up following huge amounts of stress on both consumers and business owners,” McLaughlin said.
“The remainder of 2023 will continue to be challenging for Kiwi households and businesses alike.”
Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sport.