Lara Zijl 
The Reserve Bank has issued a stark warning as homeowners increasingly fall into mortgage strife — with the number predicted to increase by the end of this year. According to the central bank, people aged between 30 and 50 are at the most risk.
This morning, the Reserve Bank released its six-monthly Financial Stability Report, highlighting concerning trends in the housing market. Stats NZ also adjusted the unemployment rate to 4.3% in the March quarter, up from the previous 4%, indicating economic challenges.
The report pointed out that while the financial system remains strong, households that borrowed heavily relative to their incomes are particularly strained by rising interest costs. A small proportion of borrowers have not been able to manage higher costs, exacerbated by cost-of-living pressures and unexpected events like job losses.
Non-performing loans have increased from 0.2% in 2022 to around 0.5%, and this is expected to rise to 0.7% by the end of the year. The number of loans that are 90 or more days in arrears has reached about half of what it was during the Global Financial Crisis.
Most borrowers have moved off low fixed mortgage rates, with the majority now on rates between 6.5% and 7%. Rising debt servicing costs are expected to be felt over time as borrowers exhaust savings and other buffers.
Data from Centrix shows that rates of financial hardship are highest among those aged between 30 and 50, who tend to have larger loans. Rising unemployment poses further risks, potentially leading to increasing amounts of debt.
Banks also face risks, as about 60% of their lending comprises mortgages. Business failures are increasing, driven by high interest rates, insurance, and operating costs, coupled with reduced consumer spending.
Inflation is declining, and the housing market remains weak due to reduced borrowing capacity and investor demand. To mitigate risky mortgage lending, the Reserve Bank is consulting on Debt to Income Ratios.
Additionally, insurance costs are becoming an increasing issue, with some households facing skyrocketing bills or being unable to obtain insurance. The Reserve Bank has released a special paper on insurance pressures, highlighting the multifaceted challenges facing homeowners and financial institutions alike.
