The Reserve Bank (RBNZ) says a number of households are facing greater job uncertainty, while some are struggling to meet mortgage repayments due to higher interest rates.
In its half-yearly financial stability report (FSR), the central bank said most borrowers have moved to higher rates, but better wages were helping them to adjust.
On the inflation front, the RBNZ warned that there was a risk that new or persistent inflation pressures could mean global interest rates could stay higher for longer.
However, it said the country's financial system remained in good shape to handle severe downturns.
"A small proportion of mortgage borrowers have not been able to manage higher interest costs. Difficulty in keeping up with payments has likely been made worse by cost-of-living pressures and other unforeseen events like job losses," the RBNZ said.
It said the share of home loans 90 or more days in arrears had risen from a "very low" 0.2 percent in 2022 to about 0.5 percent.
The number of home loans 30 days past due had also risen above the recent peak of 2020, but remained low compared to the post global financial crisis years of 2009 to 2013.
It said housing market activity was weak due to the effects of higher interest rates on borrowers, while prices had increased slowly over the past year and remained within its estimated "sustainable range".
It said proposed debt-to-income ratios would help protect against financial stability risks created by risky mortgage lending.
Inflation warning
The RBNZ noted global inflation was easing after a period of elevated levels and financial markets had priced in lower rates over the next year.
But it said central banks remained cautious due to uncertainty around the inflation outlook.
"Stronger-than-expected inflation could prompt a tightening in global financial conditions," the FSR said.
It said major central banks were focused on the slow pace of disinflation in the service sectors.
"Labour market conditions continue to ease gradually, but remain tight in advanced economies including New Zealand," the RBNZ said.
Risk of house prices rising too fast
While the housing market remained weak, the recent increases in prices had been underpinned by rental growth, driven by population growth outstripping supply, the RBNZ said.
"Strong net immigration has increased the demand for rental housing, while the supply of new housing is expected to slow once developers complete existing projects," it said.
The RBNZ said recent tax policy changes would also affect the housing market and restoring the tax deductibility of interest expenses for residential property would lead to increased demand for existing properties.
"Looking ahead, strong population growth, potentially lower mortgage rates and increased investor activity from tax policy changes suggest there is a risk that house prices will rise relative to sustainable levels," the RBNZ said.
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