Search

The Average Household Debt Level in New Zealand - 2024 Findings

Explore the latest insights into New Zealand's average household debt levels, including comprehensive data on mortgages, debt-to-income ratios, interest costs, house prices and more, which all affect debt levels.
Updated 10 November 2024
Summary:
  • As of August 2024, New Zealand's total household debt was approximately $393.8 billion (converted from USD, where it was first reported).
  • As New Zealand has around 1.8 million households, the average household debt is approximately $218,770. This figure includes all forms of household debt, such as mortgages, consumer loans, and student loans.
  • Additionally, as of June 2024, household debt was 167% of disposable income, indicating that, on average, households owe 1.67 times their annual disposable income.
  • Overall, New Zealand households have experienced significant financial changes in recent years, and household debt levels are a key component of their financial health. As house prices have, for the last 20+ years risen, so has household debt levels. 
  • With higher interest rates compared to the 2020-2022 period, many New Zealanders face tight budgets and struggle after paying off all their credit card and mortgage interest payments. However, looking at household debt data helps to explain what's going on.

Our guide covers:
Note: All figures listed in our guide are assumed in NZD unless stated otherwise. Additionally, we leverage experts in the field of data analysis and have come from a variety of sources, including:
Disclaimer: While the data may suggest insights regarding household debt levels, it's difficult to draw concrete conclusions from the data alone (due to the varying methodologies and how the data is analysed). Equally, some of the data or insights drawn in this guide may be incorrect. If there's anything wrong, please contact our research team.

More Details and Further Context:
Overall, the Key Insights include:
  • Mortgage Debt and Credit: Mortgage debt makes up around 90% of total household liabilities. The remaining 10% of household debt includes consumer credit, such as personal loans, credit cards, car finance and BNPL services.
  • Rising Debt Servicing Costs: New Zealand households currently spend approximately 8.4% of their income on interest payments alone, and due to increased mortgage rates, this figure can rise to around 18% for those with mortgages.
  • Interest Rates: Mortgage interest rates have increased significantly since 2022, with average rates rising from 3.2% in 2022 to 5.9% in 2024.
  • Mortgage Arrears: Around 1.29% of mortgages are in arrears, indicating a significant increase and growing financial strain among households.

Know This First: It's essential to account for inflation. The cost of living has eroded households' purchasing power, and rising nominal values may also reflect an increase in the number of households rather than individual households becoming better off. For example, mortgage interest payments (when adjusted for inflation) have increased sharply, and households with mortgages face varying degrees of financial pressure depending on whether they've paid off their homes, are investors, or are new buyers. 

As of October 2024, the OCR has started to fall, providing some relief to homeowners who are refinancing. However, this decrease in mortgage interest rate is still offset by the higher cost of living compared to pre-COVID costs.

Outlining the Key Findings from the RBNZ's Financial Stability Report on Household Debt

Exhibit 1: NZ Household Debt to GDP from 1991 - 2024 (Source: CEIC)
Various economic, social, and financial factors influence New Zealand’s household debt landscape. Our graphs and interpretations below highlight key figures that underscore the significant role debt plays in the lives of many New Zealanders.

When analysing the selection of charts below, several critical points emerge:
  1. Rising House Prices and Mortgage Debt: Increased housing prices mean increased borrowing, and mortgages represent a significant portion of household debt.
  2. Debt-to-income Ratio Analysis: The data on debt-to-income ratios shows how the debt burden relates to household earnings. On average, households owe considerably more than their annual disposable income, which is expected given the housing price and the wide level of consumer debt.
  3. Impact of Interest Rates: Visual representations of interest rate trends provide context for the tightening financial conditions many households are experiencing. Comparisons of the 2020-2022 lower interest rate period with the current higher rates explain why many New Zealanders now face constrained budgets.

In summary, there is a lot going on, and our guide has been published to help explain the complex reality of high debt costs and repayment stress facing many households now.
Key insight from the above graph: 
  • New Zealand households have steadily become more indebted from the 1990s to 2010 (relative to our productivity and output from a GDP perspective). This has since plateaued around 2010 for the last decade).

Per the graph below:
  • New Zealand’s household debt-to-income (DTI) ratio is one of the most commonly used statistics for analysing vulnerability in the financial system. The DTI ratio reflects the level of household debt relative to disposable income.
  • As of 2024, the DTI ratio is approximately 165%, indicating that the average household owes 1.65 times its annual disposable income. This is a slight decrease from previous years, with levels peaking around 2021 when the DTI ratio reached 170%.
  • Household debt to income reached an all-time high in 2022 (likely due to rock-bottom mortgage rates fuelling more "risk on" property investing. 
  • The two-year period from 2022 to 2024 has shown consistent declines in debt-to-income periods (which might be attributable to reduced debt balances or New Zealanders taking out less debt to purchase things like housing as house prices started to drop). 
Exhibit 2: NZ Household Debt to Income (%) Over Three Years (Source: RBNZ, Trading Economics)
Further graphs of key data:
Exhibit 3: NZ Household Debt to Income (%) Over Thirty-Three Years (Source: RBNZ, Trading Economics).
​Exhibit 4: NZ Household Debt to Income (%) Since 2000 (Source: RBNZ) (Alternative Graph From Same Data).
Exhibit 5: NZ Household Debt Servicing to Disposable Income (%) Since 2000 (Source: RBNZ)
​(In other words, what % of disposable income goes towards paying down interest on household debt).
Key insights from the above graphs:
  • At the peak of the Global Financial Crisis in 2008, the post-tax disposable income that New Zealand households used to cover things like mortgage payments and interest reached an all-time high (hitting 16%). 
  • Since then, this household debt servicing percentage has steadily dropped to around 5% in 2022. However, it started to increase as the RBNZ increased the OCR after 2022, raising mortgage rates and putting pressure on New Zealand households again. 
  • This trend may stabilise as OCR cuts get rolled out, but nothing is certain given that there are unemployment increases and job layoff fears.

Understanding the Main Trends in Household Debt (and Other Metrics)

The costs associated with servicing household debt have risen sharply due to increases in mortgage interest rates since 2022.
​
​1. Mortgage Servicing Costs
As of 2024, New Zealand households spend approximately 8.4% of their income on interest payments alone, with households holding mortgages seeing this figure rise to nearly 18%​. This is driven by the rapid increase in mortgage rates, which have risen from an average of 3.2% in 2022 to 5.9% in 2024​.
Exhibit 6: NZ Household Debt Servicing to Disposable Income (%) Since 2000
(Source: RBNZ, Westpac IQ) (Alternative Graph with projections).
Key insights from the above graph:
  • The RBNZ projects that interest rates will continue climbing into 2024 (note that the RBNZ published its report in 2023, and in 2024, we saw the OCR raised, effectively validating the higher percentage of spending on interest costs).​
2. Impact of Fixed-Rate Mortgages
Many households fixed their mortgage rates lower during the housing market boom. However, with the expiration of these fixed terms, borrowers are now exposed to much higher interest rates, causing debt servicing pressures to escalate (e.g., going from a one-year fixed rate at 1.99% in 2021 to 6 - 7% interest rates in 2024).​​
Exhibit 7: NZ Fixed and Floating Mortgage Rates from 2000 to 2024 (Source: RBNZ, Westpac IQ).
Key insights from the above graph:
  • Mortgage rates were relatively flat from 2000 - 2007, hovering around 8%.
  • Mortgage interest rates peaked around 2008 (with the floating rate at around 11% and the two-year rate at 10%).
  • Mortgage rates started steadily declining (after dropping sharply in 2009) until 2020 (likely moving in lockstep with the RBNZ's OCR declines). 
  • Both fixed and floating mortgage rates stayed close to each other for most of the last 25 years, except for the 2016 - 2020 period, where two-year rates dropped much more and became far more attractive for homeowners than floating rates. 
  • Since 2021, mortgage rates for both floating and two-year rates have increased sharply to return to the average/trend of 7 - 8% (although will start to fall from 2024, but this hasn’t been updated in the RBNZ’s forecast data when we published our study in November 2024).
​3. Household Wealth
Despite rising debt levels, New Zealand households have also seen increases in wealth (primarily due to rising property values).
Exhibit 8: NZ House Price to Income Ratios from 2000 to 2024 (Source: RBNZ, Stats NZ, REINZ)
Key insights from the above graph:
  • Housing has become significantly less affordable than 20 years ago, particularly from 2020 to 2021.
  • While other parts of the world experienced a severe real estate collapse in 2008 - 2009, New Zealand's housing market was remarkably resilient (with house price-to-income ratios staying flat over those five years). 
  • From 2022 - 2023, house price-to-income ratios dropped by about 30% across all regions (likely suggesting that house prices dropped sharply while incomes stayed relatively flat).
  • Looking into 2024, the house price to income (and house prices) seemed to have stabilised.  ​
Exhibit 9: NZ Household Wealth Split by Housing/Land and Financial Investments From 2010 – 2023 (Source: Stats NZ, Westpac IQ).
​Key insights from the above graph:
  • Household wealth has steadily increased from 2010 - 2020 for housing/land and financial assets. 
  • Household wealth had a huge spike from 2020 - 2021 (likely driven by rock-bottom low interest rates fuelling increased asset prices across the board). 
  • From mid-2021 to 2023, this asset rise started to slow, with household wealth down in 2023.
​4. Savings Rates
For the third consecutive quarter, households have maintained positive saving rates, though savings levels have moderated compared to earlier in 2023. The RBNZ reports that the savings rate is a positive buffer against rising interest costs despite economic challenges.
Exhibit 10: NZ Retail Spending 2015 to 2024 (Source: Stats NZ, Westpac IQ).
​Key insight: the more we spend (especially on debt), the higher our debt levels will likely be.
Key insights from the above graph:
  • COVID-19 had a noticeable impact on consumer spending (but effectively came back into the trendline once the economy reopened in 2021).
  • Going into 2023, nominal (not adjusted for inflation) spending levels have stayed on the trendline, but the volume of goods sold has dropped (suggesting that people are spending on higher-priced items but fewer absolute things).   ​
Exhibit 11: NZ Household Spending Per Capita From 2005 – 2026 (Projected) (Source: Stats NZ, Westpac IQ).
5. Mortgage Arrears
As of early 2024, mortgage arrears have risen steadily. Approximately 1.29% of mortgages are in arrears, a significant increase from previous years​(fsr-may-24). This uptick in arrears has been attributed to rising interest rates and higher debt servicing costs.
Exhibit 12: Effective Average Mortgage Rate from 2009 – 2024 Onwards (Source: Westpac IQ Estimates). ​
Key insights:
  • The higher mortgage rates are, the higher the proportion of disposable income that needs to go towards servicing that debt. 
  • Some household finances, such as reducing spending or increasing savings, can be controlled. Other elements, such as property values (for homeowners and investors) and the performance of assets like stocks, mortgage interest rates, and earnings, are beyond the immediate control of households.
  • With house prices dropping by 13.3% year-on-year (March 2023) and continuing to slide (although this stabilises in 2024), any recession leading to further declines in asset values or job losses could leave households in a tough spot. However, the situation may be less dire for those with savings or manageable debt loads.
Related guides