There is a growing concern as more households appear to be struggling to keep up with debt payments. A report from credit bureau Centrix indicates that 11.9% of Kiwis were in arrears as of January, the highest level seen in four years. This amounts to about 430,000 people, up by 20,000 from December 2022.
Mortgage facilities took a hard hit, with 18,400 accounts being in arrears. This is the highest level seen since April 2020 and an increase of 22% since a year ago. North Island residents appeared to be more affected than those in the South Island. Unsecured loans were also up by 9.2% from a year ago, while vehicle loan arrears increased by 5.5% over the same period.
Buy Now Pay Later (BPNL) loans were also found to experience an increase in arrears. Arrears n BPNL and personal loans rose to 9.2% by the end of January. BPNL loans are of greater concern as they tend to attract high penalty interest and penalty fees for arrears.
BPNL lenders appear to be struggling and no longer taking on just any borrower that applies for their financing. This trend towards becoming more choosier with clients is an indicator of the trouble many lenders seem to be having with profitability. One of the most popular lenders, Laybuy, is intending to delist its already declining shares and plans to make a part of its workforce redundant. Several lenders, including Genopay and Humm, are also exiting the market.
Centrix CEO, Keith McLaughlin, predicts that the situation is likely to get worse as more people lose their jobs. With inflation also having risen to 7.2%, households are also struggling to keep up with their financial obligations and appear unable to negotiate pay rises.
It is also noteworthy that recent weather catastrophes may have played a part. The region with the highest rate of debtors in arrears, 15.6%, is Gisborne. The city was badly affected by Cyclone Gabrielle. Most other parts of the North Island fell in the 12-13% range for arrears.
McLaughlin said that the difference in arrears between the North and South Islands may be more likely related to the disparity in housing prices, differing mix of industries, and less risky borrowing. He further noted that there appeared to be an increased likelihood of job losses soon as certain businesses like call centres are opting to outsource overseas and there were little indications of new businesses opening up.
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