Borrowers not yet over GFC, data reveals

Australians remain “very circumspect” about taking on extra debt, despite new data showing a big jump in credit card applications.

Veda reported that credit card applications rose 13.5 per cent in the March quarter compared to the previous year – the strongest growth since 2006.

However, part of the reason for that large increase is due to churn in the market, according to Veda’s general manager of consumer risk, Angus Luffman.

Mr Luffman told Mortgage Business that credit card debt aggregates had recorded only “modest” growth in the past five years.

He pointed to Reserve Bank data for the December 2014 quarter, which showed that while the number of purchases grew by 7.0 per cent, credit card balances grew by only 1.6 per cent as spending per transaction fell by 2.9 per cent.

Mr Luffman said Australians are now increasingly using their credit cards as payment tools rather than sources of new borrowing.

Credit card debt aggregates fell by approximately 30 per cent in about 2010 due to the GFC and have since recorded growth rates similar to that 1.6 per cent figure, Mr Luffman said.

“That says Australians are still very circumspect about taking on additional credit at this point in that unsecured market,” he said.

“However, they are certainly leveraging the innovations around payments given that number of transactions through cards and the average spend per transaction.”

Mr Luffman said although it would be an exaggeration to say that Australians have been traumatised by the GFC, they still remain cautious.

According to Veda, the big rise in credit card applications during the March quarter was accompanied by a 5.2 per cent fall in personal loan applications.

Mr Luffman said personal loan growth is usually tied to the new car market and has tapered off since surging in the 2011/2012 financial year.

“Personal credit growth stats have been more about single digits than double digits for quite a period now,” he told Mortgage Business.

Meanwhile, mortgage application growth picked up for the first time in a year, with the March quarter growth rate of 5.5 per cent double the December quarter rate of 2.7 per cent.

However, this was still well down on the peak of 14.4 per cent recorded in the December 2013 quarter.

Mortgage activity doesn’t form part of Veda’s credit demand index, although it is regarded as a good lead indicator of future activity in home buyer demand and housing turnover.

“Despite starting out slowly in January, mortgage applications saw an improved rate of growth in the March quarter, suggesting demand in the housing market remains strong,” Veda said.

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