Consumer loan arrears have declined this year, but what will happen when the shields are lifted?

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Consumer loan arrears have declined significantly since February, according to the Equifax credit bureau, but it’s unclear what will happen when the protective impact of mortgage deferrals and the government wage subsidy end.

Arrears on consumer financial services products of credit cards, mortgages and personal loans fell 27% between March and July, Angus Luffman, New Zealand chief executive of Equifax credit bureau, told interest .co.nz. This means that the total number of accounts that have not been paid off in full has decreased by 27%.

As part of this, mortgage arrears fell by 43%, personal loan arrears fell by 38% and credit card arrears fell by 23%.

Luffman points out that one of the requirements of the mortgage deferral program is that borrowers must be up to date with their payments to get a deferral, so Equifax figures only include borrowers late before foreclosure begins. in March.

“What’s interesting here is when we look at things like credit card balances or credit card usage and credit card cash advances, credit card usage and credit card usage. Advances are both down double-digit percentages. And at the same time, overall bank deposits are up around 15%. So all of this shows that the Kiwis have been more careful with their money in recent months, “he said. Luffman.

One factor in the decline in arrears, of course, may be the various COVID-19 support mechanisms in place. And the big question is, what will happen when the wage subsidy, the mortgage deferral program, and the IRD-administered small business cash loan program end? And the impact might not be immediate.

“The credit cycle will generally be lagging behind. So what a consumer will do is dig logs to try and meet their refunds. And if he then experiences stress, it will take time. [to show]. It’s going to be an area of ​​focus, there’s no doubt about it, but it will take time to play out, ”Luffman said.

The mortgage deferral program is expected to last until March 2021. Applications for the Small Business Cash Loan Program are open until December 31 of this year. And the salary subsidy applications closed on September 1, with successful applicants being able to receive them until the end of October.

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