Mortgages in financial hardship up 10 percent in April, tipped to rise over coming months - credit report

The monthly credit report from Centrix shows the number of borrowers in financial hardship reached 11,900 in April.
The monthly credit report from Centrix shows the number of borrowers in financial hardship reached 11,900 in April. Photo credit: Getty Images.

The number of mortgage borrowers experiencing financial hardship increased by 10 percent in April - and that number could rise, a new report shows.

The April Centrix Credit Indicator Outlook released on Tuesday, shows 11,900 mortgage accounts were flagged as under financial hardship, up 1100 (10 percent) month-on-month. This followed the end of the mortgage holiday scheme on March 31.

Under the mortgage holiday ('mortgage deferral') scheme, borrowers experiencing financial hardship could pause their loan principal and interest payments while they got back on their feet. Initially for six months, the scheme was extended a further six months and ended on March 31. Over the holiday period, interest costs accrued were added to their loan balance.

Centrix managing director Keith McLaughlin confirmed at the end of March, 11,900 mortgage borrowers under the scheme were reclassified as under "hardship". 

"[They were] still not able to meet their payments, were in the deferral scheme and therefore actively working with the bank under a status of hardship," McLaughlin explained.

Had lenders not been proactive in working with borrowers, offering solutions such as restructuring loans for change of circumstances and interest-only repayments, that number would be much higher, he said.

Centrix expects the number of borrowers under hardship to rise over the coming months as the circumstances that required them to put mortgage payments on hold continue to persist. 

But given property price rises, there's little concern about borrowers being "under water", where the amount of their loan is higher than the property value.

"I don't think we'll see a huge number of mortgagee sales...I think there will be more people taking initiative and downsizing their property rather than the banks forcing their hand," McLaughlin added.

Centrix's report also shows coinciding with the Government housing announcement on March 23, the value of all new loans reached $8.3 billion in March, a new record. This indicated a rush of borrowers getting loans before loan-to-value restrictions were reinstated. 

"Residential mortgage lending was up 26 percent month-on-month in March, setting a new record for that month," Centrix said.

And compared to the number of mortgage applications submitted over January and February 2020 (before the COVID-19 pandemic), applications in April were 20 percent higher, Centrix confirmed. 

A key indicator of confidence, demand for credit over April was back to 94 percent of pre-COVID-19 levels.

Demand for credit cards rose a marginal 4 percent, still below pre-COVID levels.  Centrix said this was likely a result of more people paying off credit cards and not wanting to take on new card debt.

"During the uncertainty of COVID-19 lockdown, people didn't spend as much and that resulted in many paying down their debt... I think it also reflects growth of the buy now, pay later model," McLaughlin said.

Reserve Bank data shows the total value of residential mortgage lending was $10.4 billion in March, up from $7.6 billion in February. As at April 2, the total value of mortgages on deferral was $219 million, down from $510 million.  

Kiwibank confirmed it was working with a small number of customers experiencing hardship, and recommends borrowers in this situation contact their bank early.

The Centrix monthly credit report analyses data from major banks and credit providers, including new loan applications and accounts in arrears.