Bankruptcies fall to five-year low

Falling numbers of New Zealanders are declaring bankruptcy, but there is a warning those statistics do not reflect the number of people who are living from one pay cheque to the next.

New Zealand bankruptcies are now at a five-year low of 3215 for 2017, down more than 15 per cent on 2016. On a per capita basis, New Zealand’s bankruptcy rate is about half of Australia’s.

Last year, Auckland had twice the bankruptcies of anywhere else in the country.

Hazel Phillips, spokeswoman for credit score reporting website CreditSimple, said it was a sign of a good economy over recent years, which had boosted employment.

‘‘The outlook is still good, but there are a number of changes that people should bear in mind: This year we have a new government, new legislation being passed and it’s difficult to predict what will happen to our economy.’’

Economist Cameron Bagrie, of Bagrie Economics, said the rate of household saving was better than it was in 2008 but still poor.

‘‘New Zealanders have always been poor savers, partly because we tend to ‘save’ through the equity in our houses. We tend to spend today as opposed to invest for tomorrow.’’

He said a huge chunk of society was just getting by. ‘‘Wages are low, housing costs are high and New Zealand is not a cheap place to live – ask any Brit who goes supermarket shopping here.’’

Households have more debt than they did before the global financial crisis, Bagrie said. That would make them more sensitive to any movement in interest rates.

Rates would need to move up by 2 per cent before stress became apparent, he said.

‘‘Luckily inflation is low in New Zealand. But we are seeing some movement in the USA and a key issue will be whether than transmits around the globe.’’

Philips said people needed to be realistic about the level of debt they could afford.

‘‘If you begin to struggle and ignore your bills, it can significantly damage your credit score and can often be the start of falling into bad financial habits.’’

Economist Shamubeel Eaqub said bankruptcies were a lagging indicator because people would not default on a mortgage until they had exhausted all options.

‘‘Banks will then try and manage the situation to avoid a default if possible. Bankruptcy is a pretty extreme outcome and as a result not very common and lags the economic cycle.’’

Infometrics chief forecaster Gareth Kiernan said his firm had highlighted rising household debt levels as a concern over the past six to nine months.

‘‘I’m doubtful as to whether they would lead to bankruptcy, which is very much a last-ditch option … Very, very few people are at risk of being left with negative equity if they are hit by a combination of being unable to keep up their mortgage payments – due to a job loss, for example – and house prices falling,’’ Kiernan said.

‘‘So even if a mortgagee sale occurs, they would probably still walk away with some money.’’

He said most bankruptcies were probably people who were selfemployed and hit difficult business conditions. ‘‘With most businesses, it’s a problem with cashflow rather than profitability that tends to send things pear-shaped.’’

A recent survey by the Commission for Financial Capability found that only 48 per cent of 12,000 respondents completely agreed that they paid their bills on time.