End of mortgage holidays hard for some

AUCKLAND: Coming off a homeloan holiday has not been smooth sailing for all mortgage borrowers, new figures show.

Nearly one in 10 of those who have come off a mortgage deferral have missed a payment and the percentage going into arrears has been rising, data from credit reporting agency Equifax shows.

The mortgage deferral scheme came into operation at the end of March last year as the country entered its nationwide Alert Level 4 lockdown.

At its peak, at the end of May, about 7% of mortgage account holders put $22 billion worth of mortgage debt on hold, deferring payments for up to six months.

With about 1.4 million mortgage accounts held by New Zealanders that meant roughly 98,000 mortgages were put on ice.

Since then the number on deferral has declined rapidly to around 1% of mortgage accounts, or about 14,000 loans.

Reserve Bank figures show as of January 1, $2.393 billion was on deferral and $12.8 billion was on interestonly payments.

Equifax New Zealand managing director Angus Luffman said its data showed 9% of accounts previously in mortgage deferral now had some form of arrears, up from 5% in November, indicating an emerging segment of accounts that may be experiencing repayment stress.

‘‘There has been a trend upwards and that trend is more noticeable again in the data we got in December and we will get more data on that in next couple of weeks.’’

Mr Luffman said it had decided to closely track the group of borrowers coming off mortgage deferrals because overseas evidence had shown that those borrowers that get some sort of deferral or forbearance typically as a group were at higher risk of getting into financial difficulty.

‘‘That is why we are tracking that.’’

During the lockdown arrears for all loans fell as people paid off their credit cards and loans and got ahead on their mortgage payments.

Mr Luffman said arrears for mortgage and consumer debt had now crept back up close to preCovid levels.

‘‘The overall arrears level for mortgages is now just below preCovid levels.’’

He said those coming off a mortgage deferral had higher arrears than across the whole mortgage market.

‘‘It is certainly one for people to keep their eye on. At the same time you have got really strong statistics on low unemployment and higher home equity values. People feel like there is wealth in pockets and room in valuation.’’

The mortgage deferral scheme ends on March 31 and there are no signs it will be extended further.

Asked what could happen after the scheme ended, Mr Luffman said the group of people still on a deferral was now pretty small.

‘‘I’m loathe to predict the future in a Covid world — I think within that group there is going to be particular cases that will need to be dealt with but at the same time they have also got pretty high contact from their lenders.’’

But credit ratings will be affected for those who come off a deferral and miss payments.

Under the deferral, debt collection agencies had agreed not to let it affect borrower’s credit ratings.

Mr Luffman said after March 31 it would go back to the normal approach, where credit agencies tracked the repayments and they contributed to a person’s credit score.

A poor credit score affects people’s ability to borrow in the future. — The New Zealand Herald

❛ The overall arrears level for mortgages is now just

below preCovid levels