Consumer credit demand softens in the December quarter, with credit demand driving overall growth, data shows
Mortgage applications declined in the three months to December, contributing to the softening of consumer credit demand in the December quarter, according to the latest figures from Equifax.
The Equifax Quarterly Consumer Credit Demand Index showed consumer credit demand grew +5.1% compared to the same period in 2021, with mortgage demand further dropping -16.1% in Q4, influenced by the impact of consecutive rate hikes, while mortgage balances are increasing.
Across the states, ACT led the declines, falling -21.8% in the December quarter compared to the same period the prior year. This was followed by NSW (-19.6%), Victoria (-16.1%), Queensland (-15.8%), and Tasmania (-14.3%). Mortgage demand in Northern Territory, South Australia, and Western Australia, meanwhile, dipped -9%, -9.4%, and -7.6%, respectively.
Between December 2021 and December 2022, mortgage limits climbed 5.5%, up 15% on the same period in 2020.
Driving the overall growth in consumer credit demand was credit card demand, which lifted +21.3% in Q4 versus the same period in 2021.
“The increase in credit card demand in Q4 can be attributed in part to the travel and retail expenses of the festive season, but likely also reflects the number of consumers turning to credit to help keep up with the increasing cost of living,” said Kevin James (pictured above), GM advisory and solutions at Equifax. “To date, we haven’t seen an increase in credit card arrears but, as household savings fall and the cost of living remains high, we could see financial pressure on consumers reflected in credit card usage and defaults in the coming quarters.
The report also revealed a +4.8% rise in personal loan applications.
“Conversely, personal loan arrears are increasing alongside demand,” James said. “We’re seeing an increase in arrears (<90 days past due) compared to the same quarter in both 2021 and 2020. Internationally, unsecured credit arrears are also growing in markets like the UK, US, and Canada – markets that raised interest rates before we did. In Australia, 21% of personal loan customers also have mortgage commitments. The lag between arrears in personal loans and mortgages is usually about six months, so our current data could be an indicator of an increase in mortgage arrears to come.”
Demand for buy-now-pay-later declined marginally by -0.2% compared to the same quarter 2021, while auto loan applications fell significantly by -14.4%.
“The buy-now-pay-later sector is facing a number of headwinds including market saturation and consumers turning back to credit cards as a primary form of credit, which could be contributing to the drop in demand,” James said. “Auto loans have also had a challenging quarter, despite Q4 historically being a strong period for auto loan demand. This suggests ongoing stock issues continue to worry the sector even with borders reopening.”
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