Inflation to keep pressure on interest rates, increasing the cost of borrowing: Centrix
Borrowers face a tough start to 2022, according to the January Centrix Outlook.
The year started with weaker consumer credit demand overall, falling 14% year-over-year.
The latest inflation figures, released last week, should continue to put upward pressure on interest rates, raising the cost of borrowing, chief executive Keith McLaughlin said.
“At the same time, the impact of recent changes to loan valuation, including debt-to-income ratios, loan-to-value (LVR) ratios, and the Credit Agreements and Consumer Credit Act ( CCCFA), is being felt as banks and other financial institutions take a much more conservative approach to lending,” he said.
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The proportion of mortgage applications successfully converted into new home loans has dropped significantly from 39% in October 2021 to just 27%, a drop of almost a third.
“The rising cost of borrowing and difficulty accessing finance means Kiwi businesses and consumers are facing the most significant change in the face of lending we’ve seen in many years,” McLaughlin said. .
“On a positive note, mortgage applications remain stable, indicating that housing demand is still strong.”
Despite the new lending rules, mortgage applications hit the highest weekly level of new housing applications since June 2021.
“Consumer payment arrears are at their lowest level in two years, which may mean that many New Zealanders are in good financial shape to withstand any inflationary pressures on the horizon.”
Year-on-year, the value of new home mortgages fell 27% year-on-year in December and 13% month-on-month.
This was probably due to the new CCFA regulations.
Financial difficulties had fallen to their lowest level in two years, with the health of consumer credit remaining stable and low arrears recorded nationwide.
The Tasman region had the lowest arrears in all of New Zealand, with just 7.6% of borrowers in arrears.
Gisborne had the highest total arrears at 13.5%, while Northland had the highest proportion of mortgage borrowers in arrears.
Arrears levels are expected to rise in the first part of the year, consistent with past seasonal trends, as consumer cash flows tighten after the holiday season.
Year-over-year, business credit demand was up 9% from the same period last year, with credit demand in the construction sector remaining buoyant during the peak construction season.
Despite this, the average credit score for new credit applications has reached its lowest average since June 2021.