Missed car loan payments increasing, and home loan arrears could be next

Monday, 1 August 2022

Centrix managing director Keith McLaughlin gives a rundown of default and arrears trends appearing in the market.

An increase in the rate of missed payments on vehicle loans suggests financial stress is increasing, and a growth in home loan arrears may be the next, credit bureau Centrix says.

Centrix managing director Keith McLaughlin says secured loans, like those held against cars and property, are usually the last that struggling people stop paying.

“When the economy tightens, when household budgets get tightened, arrears start to creep up and New Zealand consumers are really conscious of who they pay first and who they don’t pay. The last one you go into arrears on is your mortgage,” McLaughlin said.

Arrears on vehicle loans rose in June for the third month to 4.2%, the highest reported level since August last year.

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Centrix managing director Keith McLaughlin says new rules like those under the CCCFA have pushed loan default rates down as lenders are required to assess loans more carefully.

* Average home loan drops $25,000 in line with house price falls

* About 400,000 borrowers behind on a loan payment after 5% rise in arrears

* Tough times bite with more borrowers missing payments on their loans

Arrear rates on car loans have been higher in the past, but that was before new responsible lending rules came in, which moved missed payment rates down generally.

Centrix’s July Credit Indicator report revealed cost of living increases were beginning to hit home, with the number of accounts in arrears increasing 14% year-on-year.

That increase was across all types of credit, including credit cards, personal loans, buy-now-pay-later schemes, and home and car loans.

That 14% increase resulted in just over one-in-ten credit accounts being in arrears in June.

Just over 4% of credit consumers were 30 or more days past due, and 2.3% were 90 or more days past due.

Despite McLaughlin’s warning that missed home payments might be “the next cab off the rank”, it had not happened yet, and the number of home loans in arrears continued to fall in June.

The proportion of home loans with missed payments sat at 0.96%.

Utility arrears were also at a historically low level in June, as Kiwis appeared to prioritise housing, electricity, and other essentials during the winter months.

McLaughlin said another concern was a drop-off in credit demand – which he said was an immediate indicator of consumer confidence, and where the average person thought the economy was headed.

Mortgage lending was down 37% year-on-year. Lending for non-mortgages was down 18% on last year, most likely due a slowdown in overall demand.

McLaughlin said the business sector was also seeing the impacts of inflation and caution around discretionary spending.

“The retail sector is seeing rising defaults alongside lower activity, as well as staff shortages and supply chain issues,” he said.

On the other hand, with borders now fully open and international travel resumed, the tourism sector was seeing strong activity.