A rise in the rate of missed payments on auto loans suggests financial stress is increasing, and a growth in home loan arrears could be next, according to credit bureau Centrix.
Centrix chief executive Keith McLaughlin says secured loans, like those held on cars and property, are usually the last people in difficulty stop paying.
“When the economy tightens, when household budgets tighten, backlogs start to mount and New Zealand consumers are really aware of who they pay first and who they don’t. The last one you are in arrears on is your mortgage,” McLaughlin said.
Auto loan arrears rose in June for the third month to 4.2%, the highest level since August last year.
* Average home loan drops $25,000 in line with falling home prices
* About 400,000 borrowers in arrears on loan after 5% increase in arrears
* Tough times bite with more borrowers missing payments on their loans
Arrears rates on auto loans have been higher in the past, but that was before new responsible lending rules came into effect, which have generally lowered missed payment rates.
The Centrix Credit Indicator report for July found increases in the cost of living were starting to take hold, with the number of delinquent accounts rising 14% year-on-year.
This increase was across all types of credit, including credit cards, personal loans, buy-it-now, pay-later programs, and home and auto loans.
This 14% increase translated into just over one in ten credit accounts being delinquent in June.
Just over 4% of credit consumers were 30 days or more in arrears and 2.3% were 90 days or more in arrears.
Despite McLaughlin’s warning that missed home payments could be “the next taxi in the row,” that hadn’t happened yet, and the number of delinquent home loans continued to decline in June.
The proportion of home loans with late payments was 0.96%.
Utility arrears were also at a historic low in June as Kiwis appeared to prioritize housing, electricity and other essentials during the winter months.
McLaughlin said another concern was a drop in demand for credit – which he said was an immediate indicator of consumer confidence and where the average person thinks the economy is heading.
Mortgages fell 37% year-on-year. Non-mortgage lending was down 18% from a year ago, likely due to a slowdown in aggregate demand.
McLaughlin said the corporate sector was also feeling the effects of inflation and caution over discretionary spending.
“The retail sector is experiencing an increase in payment defaults alongside a drop in activity, as well as staff shortages and supply chain issues,” he said.
On the other hand, with borders now fully open and international travel resuming, the tourism sector was experiencing strong activity.