North Islanders bearing brunt of wave of financial hardship

Saturday, 6 April 2024

Areas where a high proportion of people are behind on loans and financial commitments are shown in red. A greater proportion of people in the North Island are struggling with money than are in the South Island.

In some parts of the North Island nearly one in five people are experiencing a personal financial crisis, with arrears turning many parts of Te Ika a Māui red.

Credit reporting company Centrix shows a nationwide rise in people who are behind on at least one credit account repayment, such as a mortgage, personal loan or power account.

One in eight adults are behind on at least one bill, adding up to 457,000 people at the end of February.

There has also been a rise in people who lenders have recognised as being in “financial hardship”, in many cases allowing them to make reduced repayments, and in some cases putting repayments on hold entirely.

In February 2024, there were 12,500 accounts reporting financial hardship, a rise of 300 since January.

Because of the importance, and size, of people’s home loans, they are the most common kind of loan on which borrowers proactively seek financial hardship status, and reduced repayments from lenders, Centrix data shows.

Prime Minister Christopher Luxon and Finance Minister Nicola Willis announce a cost of living support plan targeting rising childcare costs.

Just under 5500 people had been granted financial hardship status on their home loans by their banks, compared to just under 3600 on their credit cards.

There has also been an uptick in the proportion of home loans that have fallen so far behind it will be hard for the borrowers to catch up.

Centrix tracks the proportion of home loans on which the borrowers are behind by more than two months.

That has risen to 0.5% of all home loan accounts, up from 0.35% in February last year.

“Year-on-year, the number of financial hardship accounts are up by 27%. Overall, 44% of hardships relate to mortgage payment difficulties,” said Keith McLaughlin, Centrix managing director.

It’s not the highest the financial hardship tally has gone in recent years. In the early months of the Covid pandemic in 2020, when people were encouraged to seek repayment pauses from their banks, the number spiked to nearly 25,000.

“We continue to see arrears rise for mortgages, personal loans and buy now pay later (BNPL) products as debt and financial stress builds.”

Mortgage arrears levels have now returned to 2017 levels, Centrix data shows

The cost of living crisis continued to be felt by households and businesses, he said.

The axe is hanging over many public service jobs, but people’s money lives in Wellington are more bouyant than in most of the rest of the North Island.

But it is far from evenly spread across the country.

The top 10 regions for loan arrears are in the North Island, with nearly one in five people in the Kawerau, Wairoa and South Waikato districts behind on at least one credit contract.

Only Wellington and Thames-Coromandel continued to buck the North Island trend, with just under one in 10 people behind on at least one credit contract.

All the other areas with the lowest proportions of people behind on their financial commitments were all in the South Island: Tasman, Nelson, Selwyn, Buller, Central Otago, Dunedin and Westland.

Wellington’s happy times for personal finances may be coming to an abrupt end soon as the Government pushes through spending cuts in the public service sector, the Westpac McDermott Miller regional confidence report suggests.

Westpac senior economist Satish Ranchhod finds consumer confidence in Wellington has taken a hit as a result of job cuts coming to the public service.

Consumer confidence is down across the entire country, but it has fallen most in Wellington.

Satish Ranchhod, senior economist at Westpac, said: “Although conditions have been firm to date, businesses are bracing themselves for much tougher times ahead.

“Reductions in Government spending and staff numbers are expected to be a significant drag on activity throughout the region,” he said.

“Wellington’s labour market is already showing signs of softening. With mounting concerns about the outlook, a number of businesses have put their hiring on hold, and many are holding off replacing staff who leave,” he said.

“Among those businesses that are still hiring, they’ve told us that the number and quality of applicants has increased, while expectations for wages have fallen.”

Westpac’s regional economic mapping shows large parts of the North Island beset by “frosty” and “cold” economic conditions, while the majority of the South Island is only beset by “cool” economic weather.

By contrast, Canterbury’s economy was holding up better than many other parts of the country, Westpac said.

Otago and Southland are enjoying “chipper” farmers thanks to favourable weather, and good pasture growth, and an increase in tourists travelling to south.

Jake Lilley, policy analyst at Fincap, the umbrella group for financial mentors, said demand for budgeting and debt help continued to rise as the cost of living crisis continued to bite.

“The 2023 numbers went up a lot, and the 2024 numbers have gone up again,” he said.

Weak consumer confidence is feeding through into lower demand for many kinds of loans, including home loans, but especially for car loans.

Demand for personal credit in the form of credit cards, personal loans, and buy now, pay later loans had risen, however.

The Government is pondering loosening responsible lending regulations and laws on home loans, having gone into the general election last year pledging to make it easier for people to get home loans.