Credit arrears and business liquidations have risen to the highest level seen in the last four months and are headed towards pre-pandemic levels. Credit reporting firm, Centrix, has collected data indicating that 426,000 people were in credit arrears in July, representing 11.7 per cent of the active credit active population. This is up from 414,000 people in June.
Credit arrears were found to have risen by 7.5 per cent as compared to a year ago, making it a similar level to data collected in 2018, before the pandemic. Mortgage arrears were found to have reduced for the second consecutive month in July, as 18,800 accounts were reported as past due. Mortgage delinquencies however rose by 31 per cent as compared to a year ago.
Data collected also showed that though households were trying to limit their use of discretionary spending such as buy-now-pay-later (BPNL) facilities, there was increased use of credit cards and personal loans to tackle the increased cost of living.
BPNL arrears fell in June to 9.4 per cent, reaching their lowest level since February 2023. Personal arrears increased by 9 per cent in July and rose year-on-year by 17 per cent. Credit card arrears went up by 4.3 per cent, while vehicle loans rose to 6 per cent, the highest level in three years. Household telco arrears rose by a slight 0.2 per cent year-on-year to 8.4 per cent in July. Overall, credit arrears were found to have risen by 7.5 per cent more than a year ago.
Managing director of Centrix, Keith McLaughlin, said that active credit consumers below the age of 25 years appeared to be struggling more consistently over the last few years. He noted that their debt stress had undergone considerable growth since before the pandemic, with personal loans and credit such as telco going into arrears before credit cards and BNPL facilities.
Mortgage lending dropped by 2 per cent. According to McLaughlin, this decline indicated that the housing market downturn could be nearing an end. He also warned that the rest of the year would likely keep being challenging for Kiwi households and businesses. He, however, expects borrowers to capably weather the storm as long as they take steps to manage their finances and employment levels remain high.
Financial advisors, such as Auckland Central Budgeting, are reporting increased demand for their services this year. They noted that there were more people experiencing stress to the point of losing sleep due to the financial struggles of trying to keep on top of credit obligations. They are advising more people to take advantage of free financial advice from resources like Money Talks before they become overwhelmed by debt.
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