Inflation to keep pressure on interest rates, lifting cost of borrowing: Centrix

Wednesday, 2 February 2022

Squirrel chief executive John Bolton on the mortgage market and CCCFA restrictions

Borrowers are facing a difficult start to 2022, according to the Centrix Outlook for January.

The year started with overall weaker consumer credit demand, falling 14 per cent year-on-year.

The latest inflation numbers, released last week, were likely to continue putting upward pressure on interest rates, increasing the cost of borrowing, managing director Keith McLaughlin said.

“At the same time, the impact of recent changes to lending assessment including debt-to-income ratios, loan-to-value ratios (LVRs), and the Credit Contracts and Consumer Finance Act (CCCFA), are being felt as banks and other financial institutions adopt a much more conservative approach to lending,” he said.

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Financial hardship fell to a two-year low, according to the Centrix report.

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The proportion of mortgage loan applications successfully converted into new home loans significantly reduced from 39 per cent in October 2021 to just 27 per cent, a drop of nearly a third.

“The increased cost of borrowing and difficulty accessing finance means Kiwi businesses and consumers are dealing with the most significant change to the face of lending we’ve seen for many years,” McLaughlin said.

“On a positive note, mortgage applications remain steady, indicating demand for housing is still strong.”

Despite new lending rules, mortgage applications reached the highest weekly level of new home applications since June 2021.

“Consumer arrears are at their lowest level in two years, which may mean many New Zealanders are in good financial shape to weather any inflationary pressures on the horizon.”

When compared to the previous year, the value of new home loan mortgages decreased by 27 per cent year-on-year in December, and down 13 per cent month-on-month.

That was likely due to the new CCFA regulations.

Financial hardship had fallen to a two-year low, with consumer credit health holding steady and low arrears recorded nationwide.

The Tasman region had the lowest reported arrears across New Zealand, with just 7.6 per cent of borrowers in arrears.

Gisborne had the highest total arrears at 13.5 per cent, while Northland had the highest proportion of mortgage borrowers past due.

Arrears levels were expected to increase in the first part of the year, in line with prior seasonal trends as consumer cash flows tightened after the holiday period.

Year-on-year, business credit demand was up 9 per cent on the same period last year, with credit demand in the construction sector remaining buoyant during the peak construction season.

Despite that, the average credit score for new credit applications hit its lowest average since June 2021.