Market Updates

Borrower Stress in 2025: Arrears, Mortgage “Resets”, and What Banks Are Watching in 2026

Jan 31, 2026

House plans in a notebook

If you’re a mortgage holder, 2025 probably felt like a year of two halves.

Early on, plenty of households were still absorbing the hangover from higher rates and higher living costs. But as rate relief started to come through (especially for people refixing off the peak), the stress indicators began to ease.

So what’s actually happening under the hood? And more importantly: what does it mean for you in 2026 when you’re refixing, refinancing, buying, or just trying to stay ahead of the budget?

This article aims to give you a comprehensive overview of borrower stress: what we track, what the latest data is saying, and how to respond if things are starting to feel tight.

What we mean by “borrower stress”

Arrears vs non-performing loans (NPLs)

Different reports use different language, but two measures matter most:

  • Loans 90 days past due: repayments are significantly behind schedule.

  • Non-performing loans (NPLs): typically loans 90+ days past due or loans the bank considers impaired (i.e., the bank believes full repayment is unlikely). The RBNZ uses this definition in its bank asset quality reporting.

Early arrears (the “canary in the coal mine”)

The RBNZ often talks about early arrears as a leading indicator — it can pick up stress before it becomes 90+ days past due. In late 2025, the RBNZ noted early arrears had declined as debt-servicing costs fell.

What the data said through 2025 and into early 2026

The short version

2025 wasn’t a “no stress” year but it also wasn’t a broad-based blowout. Stress was real in pockets, and then it started easing as rate relief flowed through.

Late-2025 data showed improvement in housing stress measures

The RBNZ’s Asset quality summary – Banks (November 2025) showed:

  • System NPLs fell for the fifth consecutive month in November 2025; system NPL ratio was 0.66%.

  • Non-performing housing loans fell by $81m (-3.6%) in November 2025.

  • Housing loans 90 days past due accounted for 0.41% of total housing lending (lowest since January 2024).

  • Housing NPL ratio fell to 0.56% in November 2025.

This is the kind of “quiet good news” that doesn’t always make headlines, but it matters, especially because it shapes how confident banks feel about lending.

The RBNZ’s broader read: stable overall, easing expected

In the Financial Stability Report (November 2025), the RBNZ noted:

  • NPLs were broadly stable at around 0.8% over the past 12 months (and early arrears had declined).

  • Banks expected NPLs to ease as stressed borrowers shifted to lower rates in the next six months.

  • Credit demand was subdued and lending competition was strong as banks competed for a limited pool of creditworthy customers.

And the Monetary Policy Statement (November 2025) also stated that domestic financial stress had eased, with early arrears and non-performing housing loans declining, and banks expecting further reductions in housing impairments over 2026.

Why “rate relief” doesn’t hit everyone at once

Here’s the part that catches people out: the economy can be improving, and your household can still feel squeezed because mortgage stress is uneven.

The refixing effect is real

When rates fall, borrowers only feel it once they refix (or restructure). The RBNZ noted that a large share of fixed mortgages were due to reprice across late-2025 and early-2026, and that the average mortgage yield was expected to keep falling through 2026 based on current market pricing.

That creates a staggered pattern:

  • Some households get relief early (if they refix sooner)

  • Others feel pressure longer (if they’re still locked into higher rates, or if income is stretched)

What banks are watching in 2026 and why it affects your options

Borrower stress isn’t just a “bad news” topic, it directly affects bank appetite and how easy it feels to get a good outcome.

1) Early arrears and 90+ day past due trends

If early arrears rise, banks tend to tighten at the margins (even if headline rates are falling). Late 2025 data suggested improvement, which supports steadier bank confidence.

2) Employment and income stability

Stress tends to show up fastest when income changes (hours reduced, job loss, tenant vacancy). This is one reason banks remain cautious on expense and buffer assumptions even when rates come down.

3) Where stress sits (housing vs business/property development)

The RBNZ noted business-sector NPLs remained elevated relative to housing, even if at lower levels than in previous downturns. That matters because it can influence how banks price and assess risk, particularly for investors and borrowers with complex income.

What this means for different borrowers

If you’re refixing in 2026

This is the “don’t leave it to the last minute” year.

  • Start planning 60–90 days before your refix date.

  • Consider splitting terms if you want flexibility without relying on one rate call.

Our refixing framework can be found here to help you plan. And if you’re wondering why fixed rates don’t always follow the OCR check out our recent article on this.

If you’re buying (especially first-home buyers)

Banks still care most about serviceability (your ability to repay under stressed assumptions), even if arrears are easing nationally. Read more about how banks assess serviceability here, and check out guide on how to get you mortgage approved.

If you’re an investor

Two extra stress points matter:

  • vacancy risk and cash buffers

  • how the bank views the wider business/property risk environment

If your lending is tight, structure and documentation matter more than ever:

If things are feeling tight: a practical action plan

If you’re starting to feel stretched, the best move is usually earlier action, not perfect action.

Step 1: Get clear on the gap

  • Are you tight because of rates, living costs, income, or a combination?

  • Is this a short-term squeeze (next 3–6 months) or a longer issue?

Step 2: Talk to someone before you miss payments

Banks have support processes, but they work best when you’re proactive, not when the account is already well behind.

Step 3: Consider restructuring (if appropriate)

Depending on your situation, options can include:

  • refixing earlier (if your bank allows forward-fixing)

  • adjusting structure (splitting terms, changing repayments)

  • reviewing offset/revolving credit if you have stable cash buffers

Here's our useful guide on different repayment structures:

What’s not in the headlines (but should be on your radar)

The big picture is improving but stress is uneven

The RBNZ data and commentary in late 2025 pointed to easing housing stress indicators and stable system-level NPL ratios.

But the RBNZ also highlighted that:

  • weak economic activity and unemployment were still adding to debt-servicing challenges in some sectors

  • business-sector NPLs remained elevated compared to housing.

Translation: the system can be fine overall, while some households (and some sectors) still need careful management.

Our Final Word

The borrower-stress takeaway from 2025

  • Stress built through the earlier part of the cycle, then started easing as rate relief flowed through.

  • By late 2025, the RBNZ reported declines in early arrears and non-performing housing loans, and the asset quality data showed housing 90+ day past due levels improving.

  • For 2026, the key is being proactive: structure your refix, keep options open, and don’t wait until the budget breaks to act.

Talk to an adviser

If you want a calm, practical second opinion, this is exactly what we do all day.

Our advisers can help you:

  • plan your refix early and choose a structure that fits your cashflow

  • compare refinance options (including the real costs and benefits)

  • sense-check serviceability and policy constraints (DTI/LVR)

  • work through solutions if repayments are starting to feel tight

Get in touch and we’ll talk it through in plain English.

Want a deeper read?

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Senior Mortgage Advisor

Tama Sefuiva

Senior Mortgage Advisor

Tama Sefuiva

Senior Mortgage Advisor

Tama Sefuiva