Kiwis are borrowing less and struggling to pay back their debt as inflation bites, new figures show.
The latest Centrix Credit Indicator for July shows there is muted demand for credit as households cut back on discretionary spending in response to inflation increasing to 7.3 percent in the June 2022 quarter.
People are also struggling to pay off their debt with the number of accounts in arrears increasing, up 14 percent year-on-year. But the number of accounts in arrears had dropped month-on-month - particularly on home loans, personal loans and buy now pay later (BNPL) products.
Car arrears are also beginning to creep up the data shows, with Centrix noting mortgages and vehicle loans are usually the last credit repayments people let slip, which could be the first indicator that people are experiencing financial stress.
Centrix managing director Keith McLaughlin said it’s encouraging to see home loans in arrears are steadily decreasing, and utility arrears are at a historically low level as Kiwis prioritise their housing, electricity, and other essentials during the cold winter months.
McLaughlin said new lending for mortgages has also recovered to pre-pandemic levels but remains subdued compared to 2021.
"The business sector is also seeing the impacts of inflation and caution around discretionary spending. The retail sector is seeing rising defaults alongside lower activity, as well as staff shortages and supply chain issues," he noted.
"On the other hand, with borders open and international travel resumed, the tourism sector is seeing strong activity after being curtailed by COVID-19 restrictions over the last two years.
"Looking specifically at credit users under 30 years old, it’s interesting to see more than 620,000 active credit accounts in this age bracket – with 46 percent of them opening a BNPL account as their first instance of using credit."
McLaughlin said the next few months are likely to be challenging for many Kiwis and businesses
Credit demand down nationwide
Overall demand for new credit products is down six percent year-on-year in July 2022, Centrix data found.
Specifically, mortgage applications are 29 percent down on the same period last year, due to the downturn in the housing market. Buy now pay later new customer enquiries are also down 30 percent year-on-year.
While new credit card demand is at its highest level since November 2021, it is down 23 percent in July 2022.
Bucking the trend are auto and personal loans, with demand remaining strong for both when compared to the same period last year.
Specifically, mortgage applications are 29 percent down on the same period last year
Alongside decreased credit demand, the number of successful credit applications also dropped in June 2022.
New lending for non-mortgages is down 18 percent on last year, most likely due a slowdown in overall demand for these products in the current economic environment.
Mortgage lending is also down 37 percent year-on-year. However, new mortgage lending is now back above pre-pandemic levels in 2019.
Overall credit arrears up year-on-year
Kiwis are increasingly struggling to pay their loans back with one-in-ten credit accounts in arrears in June 2022 (10.8 percent) as the impacts of inflation begin to hit.
While a slight improvement from May 2022 (11.2 percent), this still represents a 14 percent increase in arrears year-on-year from June 2021.
Furthermore, 4.1 percent of credit active consumers are currently 30+ days past due, and 2.3 percent are 90+ days past due, indicating affordability stress for some households.
Arrears on vehicle loans have risen for the third month to 4.2 percent, the highest reported level since August last year.
Mortgage and utility arrears improve
Despite overall arrears increasing, mortgages in arrears have been steadily improving year on year.
The proportion of home loans with missed payments dropped slightly to 0.96 percent in June, with no signs of mortgage stress emerging, despite the recent 50 basis point Official Cash Rate hike and higher costs of living.
Furthermore, utility account providers continue to show improving arrears, now down to a historical low of 2.7 percent as Kiwis prioritise the essentials over discretionary spending.
Arrears on BNPL accounts have improved for the second month in a row - down to 8.3 percent.
Home Loan Arrears
There are currently more than 620,000 active credit consumers in New Zealand under the age of 30 years old.
Of these Kiwis, only 12 percent have mortgage commitments. However, more than half (54 percent) of under 30s use a BNPL product compared to 25 percent that use credit cards.
Default risk for under 30s is very similar across all unsecured products, which includes credit cards, personal loans and BNPL accounts.
The average credit score for under 30s is 633, which is 120 points below the national average.
Business credit demand down
Credit demand in New Zealand’s business sectors has fallen 12 percent year-on-year in July 2022, with average credit scores rising slightly to 765.
Looking at specific sectors, retailers are facing the strongest challenges such as supply chain issues, staff shortages and high inflation continue to place pressure on the sector.
Additionally, the construction sector continues to experience stress as the economy tightens, with rising company failures and payment defaults.
Despite this, the tourism sector is showing improving trends with increased activity and lower defaults as international visitors are back in the tourist hotspots.