New Zealand personal loan delinquencies hit three-year high

Personal loan delinquency rates in New Zealand rose to 5.95% in April, their highest level in three years, Experian said.

The latest edition of Experian's Business Pulse Monthly report also showed hardship rates on personal loans rising to 2.1%, up 0.5 percentage points from a year earlier. By contrast, mortgage hardship continued to trend lower, while mortgage and credit card delinquency rates eased slightly from the start of the year.

The figures point to a more uneven pattern of household financial strain across lending products. Borrowers using unsecured credit appear to be under greater pressure than home loan customers, even as broader economic indicators show some signs of stabilising.

Borrowers who sought temporary hardship support before missing repayments were more likely to recover after that support ended, according to Experian. Among those who entered hardship while still up to date, 87% returned to an up-to-date repayment position within six months of support ending.

Outcomes were weaker for borrowers who entered hardship after they had already fallen into arrears. The analysis suggests timing can strongly affect repayment outcomes once a hardship arrangement ends.

Consumer stress

Personal loan delinquencies have now reached their highest point this year, and over the past three years, the report said. The annual increase of 0.85 percentage points adds to signs that unsecured borrowers are bearing a larger share of consumer stress.

Credit card arrears, however, have not followed the same path. Credit card and mortgage delinquencies have edged down since the start of the year, indicating that financial pressure is not building evenly across all forms of household borrowing.

The report also linked the lending data to wider economic conditions. The Reserve Bank of New Zealand held the cash rate at 2.25% in May, unchanged since last November, while gross domestic product grew 0.8% in March, marking a third consecutive quarter of expansion.

Still, some signs of strain remain. Insolvencies rose to 251 in May, up 23% from the previous month, although they remained 6% below the same period a year earlier. Construction insolvencies continued to ease relative to other industries.

Business backdrop

Outside household lending, business-to-business payment trends remained broadly stable, the report said. Delinquency rates on invoices more than 60 days overdue in hospitality fell 2.5 percentage points from a year earlier to 6.7%, from 9.2%.

Late payment rates in industrial and professional sectors were also stable, with delinquency rates between 3% and 3.5%. Those readings suggest pressure in consumer credit is not being mirrored to the same degree in trade payment data.

Housing market indicators were mixed. House sales rose 4% month on month in May to 6,523, but were still 9% lower than a year earlier, while the House Price Index posted its fourth consecutive decline of the year.

Confidence readings have improved, according to the report, but the housing market remains subdued. That may help explain why mortgage borrowers are showing resilience in repayment data even as property market activity remains weak.

Experian also pointed to inflation risks that could add pressure in the coming months. The Reserve Bank has warned that further cash rate increases are likely, with inflation expected to peak at 4.3% in the September quarter as businesses pass on higher fuel costs to consumers.

At the same time, wholesale electricity prices have fallen sharply from more than $190/MWh in March to $98/MWh by the end of May. That may offer some relief to businesses, although it has yet to offset concerns about broader cost-of-living pressures.

Louis Tsang, Head of Analytics Consulting & Insights at Experian, said the data highlighted differences in how financial stress appears across products and borrowers.

"Our analysis suggests financial pressure is experienced differently across lending products. Personal loan delinquencies reached 5.95% in April, their highest this year and in the past three years, and hardship rates on personal loans have climbed to 2.1%. For lenders and portfolio teams, the key is to interpret these signals alongside customer context, product type and the broader economic environment to identify financial stress early and tailor support to improve customer outcomes."