Tough year reflected in falling credit scores, but the south is holding up better than the north

Saturday, 16 December 2023

Khandallah in Wellington has the most financially stable people in the country.

People living in the Wellington suburb of Khandallah have the average highest credit score in the country, with Cashmere in Christchurch the second-highest.

But in both areas, the average credit score was lower than it was a year ago, testament that the cost of living crisis is being felt even in top echelon suburbs.

Credit reporting company Centrix gathers payment data on people from the likes of banks, power companies and telecommunications companies.

It assigns a credit score of zero to 1000 for each person depending on how good they are at paying their bills on time, with 1000 being the top score.

Credit scores are used by the likes of lenders to help them decide who to lend and what terms.

Credit ratings: North Island vs South Island

Centrix said credit scores had fallen in all but 22 of the 2019 suburbs and areas which it divided the country into, showing how widely the cost of living crisis was having an impact.

The South Island Te Waipounamu had higher average credit scores than the North Island Te Ika Māui, which Centrix’s Stuart Baxter put down to an older, more established population, and a higher average skill level of workers.

That was reflected in the spread of suburbs and areas that boasted average credit scores of over 800, indicating populations having little trouble meeting their financial commitments.

Six of the nine 800-plus suburbs were in the South Island.

Baxter said on the whole credit scores had held up well despite the cost of living crisis.

“Whilst we have seen arrears go up, we haven’t seen any catastrophic drops in credit scores,” he said.

One missed payment on a loan, or account, did not have a big impact on a person’s credit score. Two missed payments had a bigger impact, and when people fell behind, and stayed behind for extended periods, their scores really took a knock.

“If we were to see a big rise in unemployment, that’s when we would see credit scores fall away quite significantly,” Baxter said.“

“Most areas have experienced a declining trend over the past 12 months,” Stuart said.

People in Cashmere in Christchurch have the second-highest average credit score in the country.

However, when Centrix dived into the data, it found the 20% of people with the highest credit scores had seen those scores rise in the past year. The 20% of people with the lowest credit scores had seen their scores fall fastest in the past year.

“There’s 20% of the community that’s struggling, but there’s 80% that are performing really well,” Baxter said.

Younger people were far more likely to be in the bottom 20% than older people.

“That 20% tends to be the younger people, who have very little or no savings to dig into, or those that are overexposed with several debt commitments,” Baxter said.

Centrix managing director Keith McLaughlin said “we are seeing new people get into difficulty that weren’t traditionally in difficulty. That’s the people who have committed themselves to a fairly heavy mortgage repayment, initially at a low interest rate.”

Centrix managing director Keith McLaughlin says people who bought first homes in 2020, 2021, and 2022 are now under severe pressure.

Earlier this week, KPMG’s non-bank financial sector survey showed people with mortgages of $500,000 or more were falling behind on repayments at a much faster rate than people with smaller mortgages.

Many were younger people who bought homes between 2020 and 2022, and included people who had also borrowed to set up the home with new furniture, and had multiple loans.

Just under half of all home loans by dollar value was taken out in those three years, McLaughlin said.

“A lot of those people will be underwater on their properties at the moment,” he said.

The suburbs and areas that had the highest average credit scores were in the South Island, and in areas where there were large retirement populations.

“The South Island is an older demographic, more financial secured,” Baxter said.

The 2018 Census showed the median age in Auckland was 34.7 years, compared to 45.5 years in Marlbrough, 38.7 years in Canterbury, and 37.2 years in Wellington.

There were also more employment opportunities per capita in the South Island, McLaughlin said.

Ōtara in Auckland has one of the youngest populations, with a median age of 30.3 years, had the lowest average credit score, Centrix found at just under 600.

“Auckland has a less-skilled workforce.”

Some posh suburbs didn’t get into the 800 club.

Remuera in Auckland, considered the suburb of choice for many company directors, had an average score of 789.

But McLaughlin, a resident of Remuera, said the suburb contained pockets of state housing, older housing, and rental apartments.

“You can’t do postcode lending,” McLaughlin said. “In a suburb you can go a block away, and you’re in a different demographic.”

“This year we started detecting these drops in scores for the first time, but the falls are still quite modest,“ Baxter said, and Centrix was expecting to see continued falls in 2024.