Mortgage deferrals have been a significant topic in the media since guidance was announced in March 2020. Since then, we’ve been using our data to report on the impact to the housing market. Here’s what’s been happening so far, and what to expect next.

At the peak of the Covid crisis, our data showed there were 80,000 mortgage ‘payment holidays’ logged on Centrix credit files. Since the mortgage deferral scheme ended in March, the majority of people are now back on a form of loan repayments.

An analysis of what happened to those deferred mortgages provides some interesting insights. Over three-quarters of mortgages on deferral restarted paying principal and interest, while another 10% restarted interest-only payments at the end of March, which is a signal of enduring financial hardship for some homeowners .

“While the deferral scheme provided much needed relief to struggling homeowners, its ending has placed some of those households under pressure once again” says our Managing Director, Keith McLaughlin, Managing Director of Centrix Group Ltd.

Since the end of March, our data also shows the number of mortgage accounts flagged as experiencing financial hardship has also increased by 10%. “Unfortunately, we anticipate this to increase further in the coming weeks as more households struggle to meet their mortgage payments and fall into arrears. This is because the circumstances that required people to put mortgage payments on hold continue to persist”, says McLaughlin.

Throughout 2020, loan payment arrears rates increased steadily. Kiwis also started to lag behind on certain bill repayments at the end of 2020, with arrears levels increasing in the utility sector, a signal of underlying credit stress in the economy .

Increasing levels of debt, combined with credit stress, may mean highly-leveraged people are relying on the Government maintaining low interest rates to be able to meet repayment obligations . In fact, latest figures show that 65% of mortgages are on fixed rate terms of one year or less, meaning the majority of New Zealand mortgages are currently vulnerable to rising interest rates .

Despite signs of credit stress, the housing market is yet to show any signs of slowing down. March saw the value of new loans increase by 25% year-on-year . But while asset prices have been exploding, with money so cheap to borrow, many people are more heavily leveraged than in previous years.

There’s also a silver lining to steep property prices; if properties around the country retain their current value , there’s little concern about borrowers sinking into negative equity, where the amount of their loan is higher than the property value.

“I don’t think we’ll see a huge number of mortgagee sales in the near future…I think there will be more people taking initiative and downsizing their property in the coming months, rather than the banks forcing their hand,” McLaughlin says.

Signs of enduring hardship for homeowners mean businesses need to keep a close eye on their customers’ payment behaviour. We offer an alert monitoring system to monitor events such as missed payments, deteriorating risk scores or hardship indicators. Portfolio Healthchecks are also useful to flag early-warning indicators for at-risk accounts and protect your cashflow.

See previous articles about the benefits of Portfolio Healthchecks