Credit data shows shocking rise in financial hardship
Friday, 1 May 2020
March was terrible for household finances, but April was a disaster, data from credit bureau Centrix showed.
Managing director Keith McLaughlin said the number of credit accounts where the account holder was flagged as being in financial hardship doubled over April, increasing from 10,000 to 20,000.
That did not include the huge number of people who had taken loan repayment 'holidays'.
“The number of accounts where the account holder has opted to take a repayment holiday because their financial situation has been impacted by Covid-19 has soared 40,000 during the lockdown,' he said.
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Credit bureaus like Centrix and Ilion compile credit reports on people and businesses using information passed to them by the likes of banks, non-bank lenders, insurers, power companies, and other businesses
“We can see from our data that increasing numbers of New Zealanders are really beginning to feel the financial pinch as the economic slowdown begins to take effect,' McLaughlin said.
The impact on household finances of the coronavirus lockdown had been far worse than the impacts of either the 1987 sharemarket crash and recession that followed, and the Global Financial Crisis, both of which McLaughlin worked through in the credit reporting industry.
Worse was to come, he feared.
'Unfortunately, we expect these hardship numbers to increase further as the economic outlook continues to deteriorate,' he said.
Figures from banks and non-bank lenders indicate the depths of hardship New Zealand households are experiencing through severe drops in income.
By April 29, the banks had allowed just over 103,000 households to take home loan repayment 'holidays', or reduce their monthly repayments.
Just under 50,000 households had been allowed to stop making repayments entirely, New Zealand Bankers Association data showed.
On Thursday, the Financial Service Federation of non-bank lenders, whose members include Instant Finance and Toyota Finance, revealed thousands of borrowers had been granted loan repayment concessions by lenders.
'Federation members have been hugely responsive in assisting customers experiencing urgent financial stress, with 3700 loan variations in the first fortnight of lockdown alone, and 5843 in the second,' said executive director Lyn McMorran.
Demand for loans dropped through the floor in March, reflecting deep caution about spending in households, McLaughlin said.
“It’s natural to see credit demand fall given the concerns many New Zealanders will have around job security and their ability to pay bills in the face of the widespread economic disruption,' he said.
McLaughlin says it is critically important that anyone struggling to pay their bills contacts their creditors early and talks through alternative arrangements to help protect their credit rating.
“Our experience suggests most companies understand the challenges consumers are currently facing, and they have put in place options to help them manage their payments and assist them through this period,” says McLaughlin.
“The worst thing you can do is ignore a bill or skip a repayment. Missing payments will not make it go away and the missed payment will negatively impact your credit rating. This will make it much more difficult to obtain credit or open an account in the future.”
The banks have done deals with the credit reporting bureaus that should see people who were granted loan holidays, and other concessions, avoid having their credit scores, which run between zero and 1000, reduced because of financial hardship caused by the economic crisis caused by the fight against coronavirus.