New Zealand’s debt crisis is reaching a tipping point, with over 485,000 Kiwis now behind on bills. As mortgage stress rises and emergency KiwiSaver withdrawals increase, the data paints a sobering picture of financial pressure nationwide.
A Closer Look at the NZ Debt Crisis
The scale of New Zealand’s debt crisis is becoming increasingly hard to ignore. As of May, 485,000 people were in arrears – that’s 12.5% of all active credit users. While 24,000 of those are behind on mortgage repayments, the real concern lies in the surge of short-term debt.
Short-term consumer lending is up 7% year-on-year. But this isn’t driven by holidays or luxury items. Instead, more Kiwis are shifting essential costs – like groceries or utilities – onto credit cards and using their cash to meet loan repayments. It’s a signal that households are robbing Peter to pay Paul.
Mortgage Holders: Feeling the Pinch
Although mortgage rates have dropped from 8% to around 5%, that’s still considered a neutral rate – it’s not actively stimulating the economy. At the same time, fixed costs like groceries, insurance, rates, and power bills have continued to climb. Even though borrowing costs have eased slightly, most households haven’t had a pay rise to match the 20% inflation seen since 2000.
This is why the debt crisis is hitting mortgage holders hard. It’s not just the home loan that’s expensive – it’s everything else that needs to be paid before that.
Short-Term Debt Replacing Daily Essentials
The rise in short-term debt is more than just a number – it’s a shift in spending behaviour. From Afterpay and other buy-now-pay-later platforms, debt tools that were once used for shoes and flights are now being used for groceries and bills. One company in the US even offered deferred payments for burritos – a clear sign the debt market is being stretched to absurd levels.
This isn’t what these tools were designed for. When the economy is strong, paying things off in instalments can make sense. But in a downturn, short-term debt becomes a crutch – and a costly one at that.
KiwiSaver Withdrawals: The Canary in the Coal Mine
Northland recorded a 109% increase in KiwiSaver hardship withdrawals over the past three years, with $10.9 million withdrawn in 2024 alone. These withdrawals aren’t made lightly – they require approval from the provider based on genuine financial hardship.
It’s a stark indicator of how deep the crisis goes. People aren’t just tightening belts – they’re emptying their retirement savings to get by.
Who’s Being Hit the Hardest?
The debt crisis is affecting different groups in different ways:
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Mortgage holders are battling rising fixed costs and wages that haven’t kept pace with inflation.
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Business owners, particularly in the construction sector, are “buying business” – winning contracts with no profit margin just to keep staff employed.
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Kiwis aged 35–49 are under pressure from rising mortgage repayments, childcare costs, and family expenses – and now make up 45% of those struggling with home loan repayments.
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Retirees aren’t immune either. 16% of Kiwis over 65 still carry a mortgage, and 22,000 have balances over $500,000. At the same time, their savings returns are dropping as term deposit rates decline with the OCR.
So… What Happens Next?
Despite speculation about OCR cuts, most economists agree that even if rates drop, it won’t do much to stimulate spending. Why? Because people aren’t splashing out on luxuries – they’re just trying to stay afloat. Lowering rates might ease some pressure, but it won’t spark a spending spree.
What Should You Do?
The advice remains the same: fall back on financial fundamentals.
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Set clear goals.
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Build and stick to a budget.
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Find ways to increase your income.
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Don’t ignore the problem — take stock of where you stand.
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Establish a clear investment strategy.
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Build an emergency fund.
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Review and adjust regularly.
As always, these small steps – done consistently – are what will set you apart when the tide turns.
Key Takeaways:
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Over 485,000 Kiwis are behind on bills, with 24,000 behind on mortgage repayments.
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Short-term debt is rising as households use credit to cover essentials.
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KiwiSaver hardship withdrawals are surging – a sign of growing financial strain.
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Mortgage holders, business owners, mid-life families, and retirees are all under pressure.
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Lower interest rates may not help if inflation and uncertainty remain high.
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Financial resilience starts with budgeting, planning, and sticking to core principles.
Next steps:
If you’re unsure how to manage your mortgage in this environment, talk to Lighthouse Mortgages – whether you’re refixing, refinancing, or just need a second opinion, the team can help you make a smarter move.
If you’d like to learn more, check out these other episodes below.
For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
