McLaughlin noted that many mortgage holders made the “smart decision” to continue paying the same amount even when interest rates were lower after the initial outbreak of Covid-19 in New Zealand.
“[This] created a good buffer which will give them some wriggle room when it comes to increased interest rates,” he said.
Last week ANZ economists warned mortgage holders to “brace for impact” following the Reserve Bank’s 75-basis-point hike of the official cash rate to 4.25 per cent, its highest level since 2008.
The Bank forecast New Zealand will enter recession from mid-2023, with the OCR peaking at 5.5 per cent.
Economist Tony Alexander warned the floating mortgage rate could go as high as 9.5 per cent next year.
Westpac bumped up its floating and offset rate 64 basis points to 7.99 per cent yesterday, and its standard fixed term rates to more than 7 per cent. This came a day after ANZ also lifted all of its fixed term rates to more than 7 per cent (its popular one year rate rose to 7.14 per cent).
“It seems increasingly likely Kiwis are staring down the barrel of an engineered recession to curb inflation and help settle the current economic climate,” McLaughlin said.
Overall, McLaughlin said, home loan arrears have been trending down since 2017 as a result of comprehensive credit data being available and the introduction of responsible lending legislation.
“We’ve seen lenders more focused over the last few years on ensuring they lend money to individuals who can afford the loan,” he said.
He also said when the initial lockdown hit, many people were focused on maintaining their biggest asset - their property.
“We saw a lot of people begin paying off consumer debts and cancelling credit cards to get themselves as debt-free as possible,” he said.
“And the introduction of the ‘hardship’ category allowed for the deferral of payments due to the uncertainty.”
Mortgage lending continues to remain lower than last year, coming in at $4.36 billion for October, down from $6.83b in October 2021. Lending was even higher at $8.43b in March 2021.
Consumer arrears also climbed in October as Kiwis struggled to meet repayments on vehicle and personal loans and telco and utility bills.
The number of Kiwis behind on repayments rose 5 per cent when compared with October last year, according to Centrix Credit.
Arrears on vehicle loans rose in October to 4.7 per cent, the fifth increase in the last six months, while telco arrears were up 1 per cent to 8.3 per cent from September 2022, and utility arrears were 3.5 per cent (up from 3.3 per cent in September).
Of active credit consumers, 4.2 per cent were 30 days or more past due in October, up from 4 per cent last month.
Consumer credit defaults were up 21 per cent on October 2021.
Demand for personal loans was up 18.1 per cent compared with October last year, while vehicle loan demand rose 17.3 per cent year-on-year.
Consumer loans granted in October came to $546 million, up from $515 million in October last year.
McLaughlin said new consumer lending has climbed for the last three months.
“The present situation for many households across New Zealand appears to show the day-to-day struggle of inflation and the impacts on the cost of living,” McLaughlin said.
“And the looming festive season is likely to be a source of stress for many Kiwis who are already dialling back their discretionary spending.
“Looking forward, it seems likely Kiwis are in for some financially challenging months ahead.”
McLaughlin said for those who are struggling to keep up with their payment obligations it was important to be proactive when it comes to planning.
“Reaching out to lenders early to organise a repayment plan is far better in the long term than simply missing repayments and potentially causing long-term ramifications for you and your financial future.”
