Tough times bite with more borrowers missing payments on their loans

Wednesday, 6 April 2022

Reserve Bank governor Adrian Orr discusses the level of concern about inflation in February.

The number of people behind on loan and bill payments is continuing to rise, data from credit reporting bureau Centrix shows.

The rise is also evident among homeowners, though just over 1 per cent of home loans have overdue payments, compared to nearly 8 per cent of non-mortgage personal debts.

Centrix managing director Keith McLaughlin said the data also indicated fewer people were seeking loans, as the higher cost of living bites into households’ disposable income.

Tough times for households sees rising arrears on loans, and fewer people willing to take on retail debt. (File photo)

Ngā Tāngata Microfinance chief executive Natalie Vincent said rising hardship in households, leading to missed repayments on loans, was being felt at the budgeting and for-good lending sectors.

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“Last month we had more than 500 enquiries, which is huge,” Vincent says.

Natalie Vincent, chief executive of Ngā Tangata Microfinance, is appalled alcohol is being bought using Afterpay’s buy now, pay later loans.

This month, there had been five applications a day, a five-fold increase on normal, she said.

Ngā Tāngata works with financial mentors.

Despite the impacts of Covid and inflation, very few homeowners are behind in their repayments.

But the demand is so high, people in financial hardship can find themselves facing a wait for help.

“We’ve got some financial mentors saying they can’t take any more referrals from us, they are so busy,” Vincent said.

McLaughlin said the hardships facing consumers were are beginning to become apparent as well, with arrears on personal loans increasing to 7.8 per cent in February.

That was the highest level recorded since March 2020, he said.

By contrast, homeowners were faring better on their loans, though arrears on home loans were edging up, and were marginally higher than at the end of last year 2021.

Demand for consumer credit dropped by 9 per cent in March 2022, following falls in January and February.

“Omicron and inflation pressures appear to have hit consumer confidence, with many Kiwis uncertain about the future of Omicron and the long-term expectations on discretionary spending,” McLaughlin said.

Some shopping areas had been hit by self-imposed isolation and remote working, resulting in a reduction in foot traffic in main city centres, he said.

“The buy now pay later sector and bank lending are the hardest hit,” he said.

Mortgage applications were down 19 per cent year-on-year.

“Falling house prices combined with lower sales, rising listings, inflation pressures, rate hikes and new lending restrictions appear to be the key drivers of this demand decline,” he said.

Defaults on debts by businesses rose 19 per cent in March. But company closures were down.

That was the result of business owners struggling to balance reduced cashflow, rising inflation and the looming threat of Omicron potentially forcing workers into self-isolation, he said.

“Economists are divided on what the right solution is for the Reserve Bank to control inflation. Despite this, business owners are going to make decisions around hiking prices to help stay afloat, with these costs inevitably passed on to Kiwi consumers,” he said.