Increase in pressure on household budgets across New Zealand as consumers cut back on discretionary spending

Increasing non-discretionary costs are putting pressure on household budgets, says a credit expert.

Household budgets remain under pressure from rising costs, a credit expert says.

Centrix’s latest Credit Indicator shows consumer arrears fell by 7000 in June to 478,000, representing 12.36% of the credit-active population.

But Centrix managing director Keith McLaughlin said there has been an increase in pressure on household budgets.

“The slight year-on-year improvement in arrears we’ve observed so far this year has plateaued … and that just seems to be sticky.

“Consumers have cut back on discretionary spending … and were managing their non-discretionary [spending] quite nicely.

“But I think we’re just starting to see a little bit of flow-through of the increase in things like insurance and rates, really just starting to make it a little harder to see those arrears drop.”

McLaughlin said he was confident that consumers were now getting on top of it.

“I think there’s just that little blip where there’s been a bit of an increase in pressure on the household budget.”

Meanwhile, mortgage arrears fell for the second consecutive month in June to 21,600, albeit just 300 fewer than in May.

McLaughlin said reductions in the Official Cash Rate (OCR) were starting to have an impact on mortgage arrears.

“We’re finding interest rates are returning to a lower base than they have been … that has enabled mortgage holders to maintain their payments.

“With 79% of mortgages due to be repriced over the next 12 months, many borrowers may benefit from lower rates.

“I think we will see an ongoing impact on that, but what we’re seeing today has been somewhat negated by the increase in the non-discretionary spending,” he said.

“Increases in rates, insurance and power does make it very hard to get the benefit out of those reductions in interest rates.”

Since August last year, the OCR has been cut by 225 basis points (bps).

The number of accounts reported in financial hardship in June was 14,450, down 550 from the prior month, Centrix said.

Year on year, financial hardships increased 7.1%, but the rate of growth has eased in recent months.

Elevated stress for small businesses

McLaughlin said small businesses were facing elevated levels of mortgage stress, with many relying on home equity to fund and sustain operations.

“We’re really quite concerned about that. Consumer spending is still quite cautious, and I think that’s having a flow-on impact into the cash flow on those small businesses.

“Consequently, we are seeing quite a rise year on year with liquidations and with company arrears.”

Overall, company liquidations rose 26% year on year in June, with the hospitality sector now the second-largest industry contributing to liquidations.

In the 12 months to June, 288 hospitality businesses were placed into liquidation, up from 199 the previous year.

Hospitality businesses are more than twice as likely to fail as the typical New Zealand business.

“This is a clear sign that the industry continues to struggle with rising operating costs and shifting consumer spending patterns,” McLaughlin said.

Construction remains the hardest-hit industry, with 755 companies liquidated in the past year – an increase of 48% compared with the previous year.

Recent figures from insolvency specialist firm McDonald Vague show a spike in Inland Revenue-enforced liquidations.

In June, the tax agency made up 50 of the 71 applications for the month, while in May it accounted for 70 out of 99.

IRD applications to wind up companies totalled 802 for the last financial year (12 months to June 2025), up from 586 in the year prior and more than triple that of 2022 (223).

Cameron Smith is an Auckland-based business reporter. He joined the Herald in 2015 and has covered business and sports. He reports on topics such as retail, small business, the workplace and macroeconomics.