Household Finances Improve Ahead of Christmas Shopping Season

The financial landscape for many households has shown marked improvement as Christmas shopping approaches. According to credit reporting company Centrix, the percentage of people behind on loans, utility bills, and other credit contracts has fallen to levels not seen since before the coalition government took power in New Zealand. Data released at the end of October 2023 indicates that 11.83% of the credit-active population was in arrears on at least one financial obligation, the lowest rate in over two years.

This reduction brings the arrears level back to the figures recorded in October 2023, shortly before the coalition ministers were sworn in on November 27. This suggests a stabilization in household finances, providing a more favorable environment for consumer spending as the festive season nears.

Improved Financial Health and Lending Trends

The decline in arrears is not limited to general bills; mortgage arrears have also dropped significantly, with 20,900 mortgage accounts reported as past due. Delinquencies on credit cards and vehicle loans have similarly decreased from earlier peaks this year. Monika Lacey, chief operating officer at Centrix, remarked that the current arrears rate is 2.5% lower than a year ago, indicating a positive trend in financial recovery.

Despite this progress, the data still reflects a serious situation for many, with approximately 459,000 people remaining behind on at least one payment. Among them, 177,000 individuals are overdue by more than 30 days, including 84,000 who are behind by over 90 days. Notably, this latter group nearly matches the entire population of Palmerston North.

On a positive note, new household lending has surged by 13.2% year-on-year. Lacey noted that mortgage inquiries remain strong, driven by borrowers seeking to refinance for better terms. She highlighted that $3 in every $10 of new mortgage lending is refinancing, illustrating a growing trend among households to explore more favorable home loan rates.

Consumer Caution and Economic Outlook

Despite encouraging signs in some areas, a cautious approach remains prevalent among consumers. Demand for credit cards has decreased sharply, down 22.2%, indicating some reluctance to take on additional debt. While demand for credit by households and businesses rose in the past month, the number of company liquidations continues to be high.

Lacey pointed out that this reflects ongoing financial pressure on many businesses, compounded by increased auditing and enforcement by the Inland Revenue Department (IRD). Economists, including those from the Reserve Bank Te Pūtea Matua, anticipate that 2026 will mark a year of economic improvement, with expectations of lower mortgage rates and rising employment levels.

Recent reductions in the official cash rate, which was lowered to 2.25%, have begun to positively impact the credit environment, according to Lacey. The former governor of the Reserve Bank, Christian Hawkesby, recently informed a select committee that the economy has “moved through a danger zone,” with annual inflation recorded at just over 3% for the three months ending in September.

While the positive trends in household finances are welcome news, Finance Minister Nicola Willis acknowledged that many New Zealanders wished for a more rapid recovery. As consumers prepare for the holiday season, the improved financial health may provide a much-needed boost to retail spending, fostering optimism for both households and businesses in the months ahead.