Strong mortgage demand bucks credit trend

Data company Equifax has released its latest Quarterly Consumer Credit Demand Index, which revealed that consumer credit demand was down 29.6 per cent in the September quarter compared with last year.

The decline is being driven by a 32.3 per cent drop in personal loans and the “continued downward spiral” of credit cards, which slumped 39.5 per cent, according to the index.

The drop in demand for credit cards has been attributed to the Victorian COVID-19 lockdown, with personal loans and auto finance in the state down more than 40 per cent.

However, despite the overall slump in credit applications, mortgage demand has remained strong, with home loan applications for the September quarter up 16.3 per cent from a year ago.

Mortgage demand includes the number loans applications for new properties as well as refinancing (but not necessarily approved loans).

The index showed that even Victorian buyers continued to apply for mortgages despite spending the three months to September confined by restrictions, with mortgage applications rising by 1.3 per cent in the state.

Equifax is expecting that home buyer activity would continue to rise over the next quarter as Melbourne moves out of stage 4 restrictions, provided the coronavirus remains under control and interest rates remain low.

Mortgage demand rose across all states and territories, with Western Australia recording the strongest demand (up 48.3 per cent), followed by the ACT (up 31.6 per cent), while NSW posted a softer recovery (up 14 per cent).

According to Equifax, historically, movements in the company’s mortgage application demand data has led movements in house prices by around six to nine months.

The index measures the volume of credit applications for credit cards, personal loans, buy now, pay later (BNPL) and auto loans. The data has been re-indexed from 2018 to account for the recent inclusion of BNPL applications.

While mortgage applications are not part of the demand index, Equifax said they are a good indicator of home buyer demand and housing turnover.

On the other hand, demand for personal loan applications have dropped by 32.3 per cent compared with the September 2019 quarter, while auto loan applications decreased by 15.3 per cent.

Commenting on the trends, Equifax general manager, advisory and solutions, Kevin James said: “Coronavirus government stimulus measures like JobKeeper have helped cushion the blow of this pandemic for consumers who would otherwise rely on credit.

“This is particularly evident when looking at the volume of personal loan applications, which have dropped by around 30 per cent for two consecutive quarters. As government stimulus starts to pull back, we anticipate personal loans may experience a revival, particularly among subprime borrowers who may not be eligible for other kinds of financing.”

BNPL applications have also declined by 13.2 per cent. Demand for BNPL applications has decreased for two consecutive quarters, and this decline extended across every state and territory for the first time in more than eight quarters.

“Despite the subdued interest in buy now, pay later, there have been some interesting movements across generations,” Mr James observed.

"In the September quarter, Baby Boomers had the lowest share of enquiries for BNPL but the highest rate of growth. Generation Z accounted for a quarter of all enquiries even though they only made up 5 per cent of the working adult population. And digital-savvy Gen Y has shown the largest shrink of any generation.”

Equifax's recently released Quarterly Business Credit Demand Index (for the September quarter 2020) showed that overall business credit applications were down 11.5 per cent (when compared with the September quarter 2019).

Of this, business loan applications were down 13.3 per cent, asset finance applications were down 12.0 per cent and trade credit applications were down 6.5 per cent.

[Related: Majors saw no net mortgage growth in NSW in October]