Kiwis turn to personal loans as interest rates rise, Centrix says

An increased volume of personal loan applications suggests that Kiwis are increasingly turning to debt to finance their expenses, according to Centrix.

The credit bureau’s October Credit Indicator shows that the value of new consumer loans issued in September this year was 18% higher than in September 2021.

“The economic climate remains difficult for many Kiwis as they continue to adjust to the effects of inflation and the rising cost of living. The Reserve Bank has raised the official exchange rate for the fifth time to 3.5%, the highest level in more than seven years, and interest rates continue to climb,” said Keith McLaughlin, Centrix CEO.

“Alongside this, Statistics NZ recently reported that the cost of living for the average Kiwi household increased by 7.7% in the September quarter of 2022. This compression is reflected in borrowing as demand for credit at consumption has started to climb back to pre-pandemic levels, with personal loans rising as Kiwis turn to credit to support spending.”

According to Centrix, in September, 10.6% of active borrowers were in arrears, up 2% year-on-year. About 4% are currently more than 30 days overdue and 2.3% are more than 90 days overdue. These figures remain unchanged from month to month.

Mortgage applications and loans tend to decrease the housing market continues to weaken. Applications for home loans fell by 11% over one year. New mortgage borrowing decreased by 37%.

However, mortgage arrears edged above 1.0% for the first time in six months, with 14,600 mortgage accounts in arrears. Despite this, Centrix sees no signs of widespread mortgage stress.

Auto loan arrears improved to 4.5% this month from 4.8% the previous month, after rising for the past five months. Arrears on unsecured personal loans fell from 7.7% to 7.6%, according to Centrix.

Credit card arrears remain at record highs of 3.9%, which have been hit three times this year so far in June, August and September.

New credit card applications rose 3% year-over-year, while buy-it-now, pay-later applications fell 25%, according to Centrix.

The number of Kiwis with active credit card accounts is down 33% since 2019, and the average credit score is 824. A credit score is a number between 1 and 1000 indicating the likelihood that you will pay your bills on time.

There are nearly 2.1 million New Zealanders who have an active credit card, with 650,000 borrowers with multiple credit cards in their wallet. The average credit limit on active cards in New Zealand is $7,600, according to Centrix.

The average business credit score for new applications fell to 756. It has been falling steadily over the past six months from a high of 779 in April.

“The hospitality and construction sectors in particular are feeling the slump at the moment. Both sectors have seen an upsurge in defaults due to supply chain issues and the general slowdown in consumer spending. Overall cost increases are becoming difficult to pass on to customers who are much more aware of their expenses right now, making the continued impacts of inflation even more difficult for Kiwi business owners,” McLaughlin says.

Meanwhile, the number of households behind on utility bills has improved, falling to 3.3% of accounts in September from 3.6%.

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