Key Facts

  • Missed payments on recent, large home loans are increasing at a faster rate compared to modest loans, suggesting the emergence of “two economies” in New Zealand.
  • According to Centrix, this split comprises people managing comfortably-sized home loans, and those struggling with large loans taken out from 2020-2022.
  • In October, mortgage arrears of more than 30 days were up 55% compared to the previous year.
  • Decreased property values and shifting interest rates are causing a rise in arrears for mortgages valued at over $500,000.
  • Financial mentor David Verry warns larger mortgages put people at great risk of not managing increasing home loan interest rates and the cost of living.
  • Verry suggests mortgage effects on people with loans between $600,000 – $800,000 are significant, as a change in interest rates can be overwhelming.
  • Centrix reports 0.42% of mortgages below $500,000 were in arrears over 30 days, compared to 0.62% of mortgages over $500,000.
  • Centrix states 47% of all mortgages are valued over $500,000.
  • Older people are faring better, likely a result of smaller mortgages or no mortgage debt.

Article Summary

Centrix, a credit reporting company, has noted a remarkable increase in arrears on substantial home loans taken out recently, as compared to smaller, more manageable loans. This disparity is seen to reflect an emerging “two economies” scenario in New Zealand, where people with reasonable-sized home loans are weathering higher mortgage rates, in contrast to those grappling with hefty mortgages taken out between 2020 and 2022.

There has been a noteworthy rise in missed payments on these larger loans, with October seeing mortgages overdue by more than 30 days increasing by 55% from the previous year. As per Centrix Director Keith McLaughlin, individuals who took out mortgages in 2020 and 2021 are confronted with challenges from decreased property values and fluctuating interest rates. As a result, there’s been a surge in arrears for mortgages over $500,000.

Moreover, David Verry, a financial mentor, has warned that larger mortgages put homeowners at risk of failing to manage increases in interest rates and costs of living, including insurance costs and rate increases. The impact of interest rate changes on those with a mortgage between $600,000 and $800,000 is substantial, as a small rate change could create financial havoc for these homeowners. On contrast, people with smaller mortgages could absorb rate rises more easily.

Only time will determine how 2024 will unfold. There is, however, a clear need to manage the cost of living crisis to aid these financially strained households. Notably, older individuals are handling these challenges better, likely because they have smaller or no mortgages.

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