PHOTO: New Zealand households and businesses are confronting heightened debt servicing costs, with an increasing proportion of mortgages falling behind on payments from previously low levels. RAWPIXEL
New Zealand borrowers may increasingly experience financial strain as households grapple with the challenge of repaying high debts, as cautioned by the Reserve Bank (RBNZ) on Wednesday. In its semi-annual Financial Stability Report, the central bank disclosed its close monitoring of developments in the Middle East and acknowledged that China’s slowing economy posed potential risks to New Zealand’s commodity prices.
Post-election confidence hits the property market | realestate.co.nz
In the context of surging inflation, the Reserve Bank has been actively raising interest rates to restrain spending. Currently, the official cash rate stands at 5.5 percent, with expectations that it may rise further.
According to the RBNZ’s report, “New Zealand households and businesses are confronting heightened debt servicing costs, with an increasing proportion of mortgages falling behind on payments from previously low levels.” Recent data reveals that 11.7 percent of New Zealanders are lagging behind on their debt repayments, marking a 10 percent year-on-year increase. Furthermore, credit reporting company Centrix reported that 1.25 percent of mortgage accounts were overdue.
The RBNZ pointed out that the elevated interest rates are affecting borrowers, and it anticipates the emergence of “pockets of stress” in the medium term, especially as heavily indebted households face more substantial debt servicing burdens.
With New Zealand’s economy projected to experience sluggish growth in the short term due to the persistently high interest rates, the RBNZ issued a warning that this situation could lead to “increased financial hardships for certain borrowers.” The report concluded by noting that “overall, financial distress among households and businesses is on the rise from a previously low level, as budgetary pressures mount for many borrowers.” Households have been adapting by cutting back on discretionary spending and collaborating with their banks to manage the increasing debt servicing burdens, but financial stress is expected to continue rising, as indicated by both the RBNZ’s projections and those of banks.
Got an interesting property related story?