The prospect of official cash rate (OCR) cuts this year would help, as would income tax cuts.
As for households, McLaughlin believed they had been caught out in recent years by the speed at which interest rates had risen, more so than the level of rates themselves.
The average mortgage rate paid by those with bank loans rose to 6.19% in May, according to the latest available Reserve Bank data. Two years prior, the average sat at only 3.36%.
Coming back to the Centrix figures, the number of mortgage accounts past due was up 11% in June 2024 compared to June 2023, while the number of business credit defaults rose by 5%.
The construction and transport sectors fared particularly badly, with credit defaults up 17% and 18% respectively over the year.
Property and retail also had a tough time, with defaults up 10% and 5% respectively, while defaults in the hospitality sector fell by 6%.
While the number of businesses in arrears fell in June compared to May, the number of company liquidations continued the upward trajectory it had been on since mid-2022.
The number of liquidations rose by 19% to 216 in June. The construction and property sectors accounted for a large portion of these.
The number of individuals reporting “financial hardship” rose by 28% over the year, with nearly half of these cases relating to mortgage payment difficulties, 29% relating to credit card debt and 18% to personal loan repayments.
Taking a step back, default rates weren’t nearly as bad as they were after the 2008-09 Global Financial Crisis (GFC).
According to Reserve Bank data, 0.7% of the value of all bank loans were deemed “non-performing” in June.
Non-performing loans include those that are impaired (where something has happened to make the lender believe it won’t receive everything it’s owed) as well as those that are 90 days past due.
Banks are typically more risk-averse than finance companies and the other lenders also captured in the Centrix data.
Nonetheless, at 0.7%, the non-performing loans ratio was much lower than the 2.2% level reached after the GFC.
The ratio sat at 0.4% before the Reserve Bank started hiking interest rates in late 2021 to curb inflation, slowing economic growth in the process.
Like the Centrix data, the Reserve Bank’s data shows banks’ non-performing loans ratio fell between May and June this year.
Banks’ business loans (which are worth about a third of housing loans), were the anomaly, with the non-performance ratio in this category rising to 0.9%.
McLaughlin said businesses were “getting pinched in all directions”.
While conditions were due to improve, many business operators were still scarred by the higher costs, including wages, and supply chain issues faced in recent years.
McLaughlin hoped sentiment would improve ahead of Christmas.
When the Reserve Bank last reviewed the OCR three weeks ago, it softened its “tough on inflation” language markedly.
After this, the annual inflation rate for the June quarter came in at 3.3%.
Economists now believe the Reserve Bank will cut the OCR at least once or twice this year, rather than hold off until the middle or late stages of 2025, as it suggested it would in May.
Financial markets are likewise betting on the OCR falling sooner, prompting wholesale rates to fall, and retail banks to cut their mortgage and term deposit rates accordingly.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary Press Gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
