Post-home loan holiday blues: Missed payments rise for those coming off deferral

Coming off a home-loan 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 level 4 lockdown.

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

With around 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 per cent of mortgage accounts, or around 14,000 loans.

Reserve Bank figures show as of January 1 $2.393 billion was on deferral and $12.8b was on interest-only payments.

But Angus Luffman, Equifax New Zealand managing director, said its data showed 9 per cent of accounts previously in mortgage deferral now had some form of arrears, up from 5 per cent 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.”

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

But Luffman said arrears for mortgage and consumer debt had now crept back up close to pre-Covid levels.

“The overall arrears level for mortgages is now just below pre-Covid levels.”

But 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 ends 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 those who come off a deferral and miss payments will have their credit rating affected.

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

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

A poor credit score affects people’s ability to borrow in the future and what interest rate they might be charged by a lender.

Mortgagee sales low

Mortgagee sales numbers so far remain at record lows.

CoreLogic figures show mortgagee sales hit an all-time low of just 14 in the second quarter of 2020 but bounced back up to 31 forced sales in each of the third and fourth quarters.

That compares to 66 in the three months to September 2019 quarter and 56 in the December 2019 quarter.

It’s a far cry from the last time New Zealand hit a big economic downturn after the global financial crisis in 2008 and 2009.

At the peak in the third quarter of 2009 there were 778 mortgagee sales in just that three month period.

Nick Goodall, head of research at CoreLogic, said mortgagee sales were the lowest on its records.

“It reflects the fact the economy really didn’t really drop as much as we thought.”

Goodall said during a typical recession many people lost their jobs and the ability to pay for their mortgage.

But this time was different. “Generally people kept their jobs, we had so much support from the Government through the wage subsidy there was less likelihood that people would have problems and then, if they did have any issue with their income, they could use the backstop of the deferral.”

That meant people weren’t forced to sell up because they couldn’t afford their mortgage any more.

“It really reflects the fact that while we went through this crazy unprecedented shock, we have also had unprecedented support provided from the Government, Reserve Bank and the banks themselves.”

Goodall doesn’t believe the end of the deferral scheme will result in more mortgagee sales at this point.

“I don’t think so. There is always going to be a few of these when people fall afoul. But it’s a last resort for the bank they don’t really want to go down that path. They do everything they can to ensure people can stay in their property or can sell on market rather than mortgagee.”

But he said it would not all be plain sailing.

“While we have obviously survived and come out the other side of the recession quite well there are some sectors of the economy that aren’t back to normal.”

Goodall said while tourism did quite well through winter because domestic tourism picked up it was Summer when those businesses typically made the most income.

“So there is still a period of potential pain to come for some industries and some areas of the country and that could flow through – there could be business owners that have businesses and jobs and have mortgages where they may come to a point where they need to consider their options.”

While there was good news on vaccination front, Goodall said it was still going to take a while to roll out.

“The economy is still going to take time to get up to full speed in terms of all industries especially with the borders closed that’s going to be some way off. It is fair to say we are definitely through the worst of it but we are not home and hosed just yet.”

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