Auckland epicentre of mortgage crisis
Auckland has more than its fair share of households behind on their mortgages, ahead of every other region except Northland.
However, a region by region breakdown by credit reporting company Centrix, shows other areas are on par, or even worse, than highly-priced Auckland for the proportion of mortgages where homeowners are in the disastrous position of being 90 days or more behind on their repayments.
Across the whole country, about 22,500 households are behind on their home loans to some degree, with 5662 behind by three months or more, a number that has been rising in recent months.
Centrix managing director Keith McLaughlin said when people fell behind by three months, it was hard for them to catch up, and they were dubbed “non-performing” by their lending banks.
Across the whole country 39 in every 10,000 households find themselves in that unenviable position. It is 43 in every 1000 in Auckland, 42 in Wellington but just 26 in Canterbury.
While that sounded low, McLaughlin said the number households affected equated to the equivalent of entire suburbs in mortgage trouble. In Auckland, the 8364 households in mortgage arrears equated to the number of households in the large upmarket suburb of Remuera, and the 2116 in serious arrears equated to all the households in Ponsonby.
Alarming as those rates of delinquency on home loans were, Satish Ranchhod, senior economist at Westpac, said they had returned to pre-Covid pandemic levels.
Arrears on home loans across the whole banking system were correlated with home loan interest rates and mortgage servicing costs, he said.
“Arrears have been low over the last couple of years because we have had such low interest rates, so debt servicing was much easier,” he said.
But as high employment, high government spending, and a global supply chain inflation, drove up inflation, the Reserve Bank Te Pūtea Matua hiked the official cash rate (OCR), which fed through into higher mortgage rates.
Westpac did not expect the Reserve Bank to start cutting interest rates until the start of next year, so home loan repayment relief was some way off for most people with home loans.
Ed McKnight, economist from property investment company Opes Partners, said Canterbury homeowners had had to pay less for their homes, and sohad been relatively less exposed to higher mortgage rates.
Property analysis company CoreLogic’s data shows Canterbury homes had been significantly more affordable than Auckland homes for several decades, and roughly on par with Wellington homes.
That meant people who bought homes in Canterbury three to five years ago would have had much smaller loans than people buying comparable quality homes in Auckland.
“It would be much tougher, if you owe $600,000 than if you have a $300,000 mortgage,” he said.
He also said the Canterbury market had much more price variation, while all Auckland homes were expensive.
McLaughlin said home loan arrears were also correlated with unemployment, and what he called employment “stability”. By and large, most people with home loans found a way to manage as long as their incomes were not interrupted.
This could include someone who asked their banks for help, and were allowed to restructure their loans to reduce repayments through the financial hardship processes all lenders must by law offer.
Few homes went to mortgagee sales. Instead, negotiated arrangements, such as homeowners agreeing to voluntarily sell their homes, were the most common way banks and debtors resolved arrears.
Behind the arrears statistics were people experiencing high personal levels of stress, McLaughlin said.
Unemployment was lower in Canterbury than Auckland, and employment in Canterbury was more stable, leaving households less exposed to periods of joblessness, he said.
In his recent analysis of regional economies, Ranchhod found Auckland’s labour market had loosened thanks in part to strong population growth. Unemployment had risen to 4.2%.
Regional economies varied widely, and helped explain regional arrears hotspots, McKnight said.
Northland had the highest proportion of home loans in serious arrears, an area Westpac classed as having “frosty” economic conditions.