Photo: RNZ / Michelle Tiang
- Seasonal increase in borrowing for Christmas holidays
- Hardship cases, mortgage arrears increase but rate of growth slowing
- Business liquidations up 36 pct on year ago, expected to worsen
- Credit demand rises, lower interest rates helping
The number of consumers in arrears edged higher in December as people borrowed more for holiday spending, but the pace of growth has slowed.
Credit bureau Centrix's latest report shows 470,000 were behind in loan payments, up 1.3 percent on a year ago.
Managing director Keith McLaughlin said a seasonal increase in arrears was usual, although there were signs that households were getting on top of their debt.
"Following the festive season, we've observed the seasonal uptick in consumer arrears as people lean on credit products to help celebrate the end of the year."
Personal loan arrears and buy-now-pay-later increased in December on the month before but were either steady or lower than a year.
"I think it sends all the signs that households have their budgets under control, and I think we're going to see a gradual improvement in household arrears over a period of time," McLaughlin said.
Mortgage pain remains
Mortgage arrears rose more quickly in December on the month before, with 22,100 accounts past their due date, to be 7 percent higher than a year ago, and nearly half of the 14,300 hardship cases were mortgage repayments.
"Highest rate of financial hardship is with those aged between 35 and 49 years old, an age bracket who are likely to have mortgage repayment obligations to meet."
McLaughlin said falling interest rates were likely to help households gain greater control over their debt levels as borrowers refix to lower mortgages rates.
But the drop in rates was also proving to be a driver of demand for credit with a 13 percent rise in new residential lending, although it remained still well below the property boom in 2021, while new demand for car loans, personal loans, and buy-now-pay later were all lower than a year ago.
Businesses in distress
McLaughlin said the business sector was doing it much tougher because of weak consumer demand, poor cash flow, and the Inland Revenue being tougher on late taxes.
Liquidations were up 36 percent year-on-year, with the construction, property, and transport industries particularly hard hit.
"I do fear for some businesses out there ... it has been a struggle for some time, their cash flows haven't risen to cover rising costs, so I think we're in for three or six months of difficult times and I think we will see a lift in liquidations and receiverships."
He said further interest rate cuts from the Reserve Bank, and the freeing up of lending rules, should flow through to consumer spending would be a boost for business.
