Kiwis are borrowing more as inflation eats into households' spending ability. Photo / Michael Craig
Demand for personal loans continues to climb as the rising cost-of-living crisis squeezes Kiwi households.
New consumer loans granted in September came to $552 million, 18 per cent higher than in September 2021 ($468m) as Kiwis increasingly turned to credit to fund their spending, according to credit bureau Centrix’s latest Credit Indicator.
Consumer loans have been tracking up since January 2022, when they totalled $395m.
New credit card applications were up 3 per cent year-on-year, and there are nearly 2.1 million Kiwi consumers who have credit cards. 650,000 borrowers have multiple credit cards in their wallets, but this number has fallen 33 per cent since 2019.
Annual inflation remains stubbornly high, with the Consumer Price Index for the year to September coming in at 7.2 per cent - well above expectations of about 6.5 per cent.
This followed an annual increase of 7.3 per cent in the June quarter and 6.9 per cent in the March quarter.
Quarterly inflation rose 2.2 per cent compared with the June quarter, with food prices as the main contributor.
“Presently, there appears to be no silver bullet in sight to end the cost-of-living crisis many Kiwis are experiencing,” Keith McLaughlin, managing director at Centrix Group, said.
“It’s clear from credit demand for personal loans that Kiwis are beginning to borrow again. This could suggest households are turning towards credit to fund their lifestyles as household cashflows tighten up.”
Meanwhile, mortgage lending and applications continue to trend down.
New mortgage lending in September came to $4.2 billion, down 37 per cent when compared to September 2021 ($6.67b).
New mortgage lending has risen from $4b in January 2020 (pre-Covid), hitting a two-year peak of $8.45b in March 2021, as buyers poured into the property market amid record-low interest rates and the easing of loan to value ratio (LVR) restrictions as the Reserve Bank moved to support the economy through the pandemic.
But September was the fourth consecutive month mortgage lending was lower than the previous.
Applications for mortgages in September were down 11 per cent year-on-year.
“The general downturn in the real estate market across New Zealand coupled with the rising cost of living sees Kiwis committing to fewer mortgages,” McLaughlin said.
“And when you consider the recent reports of lower-than-expected auction turnouts and overall cooling of the market, perhaps Kiwis are hunkering down to get through these uncertain times.”
“I’m sure rising interest rates and the overall economic climate is putting people off taking on additional large monthly expenses like a mortgage.”
Despite rising interest rates - as the Reserve Bank continues to hike the Official Cash Rate to get inflation under control - mortgage arrears have remained stable.
Mortgage arrears edged above 1 per cent for the first time in six months, with 14,600 mortgage accounts past due, according to Centrix.
But McLaughlin noted that households could come under additional pressure as homeowners move onto higher home loan rates in the coming months.
“Historically, mortgages are the last repayment people miss during times of economic uncertainty due to it being their largest asset and – quite literally – the roof over their head,” McLaughlin said.
“The slight uptick in arrears is coming off record lows seen over the last two years. Of course, further changes to monetary policy and interest rates are likely to continue impacting Kiwi households in the future.
“We know many mortgages will be rolling off fixed home loans and onto higher rates in the coming months, which could place households under additional pressure.”
Last week ANZ NZ chief executive Antonia Watson said 57 per cent of its home loan customers were still on an interest rate between 2-3 per cent, but those fixed terms were due to roll over in the next year or so.
According to the latest Reserve Bank figures the average fixed rate mortgage was still just 3.68 per cent as of August.
“For anyone who is struggling with mortgage repayments, it’s important to talk to your bank as soon as possible to work out a repayment plan. Letting payments slip can cause huge financial headaches later down the road, so getting financial advice from your bank or a financial adviser can help people get through,” McLaughlin said.