Mortgage application down amid financial hardship: Equifax

According to the latest Equifax Quarterly Consumer Credit Demand Index, mortgage applications fell in the second quarter of June 2023 (2Q23) by 2.8 per cent compared to the same period in June 2022.

Overall consumer credit applications fell 3.3 per cent over the same period, taking into account auto loans that fell 5.4 per cent.

With a cash rate at 4.1 per cent, the effects of multiple interest rate rises are “becoming more evident” on Australian home owners, general manager advisory and solutions at Equifax, Kevin James, said.

Mr James highlighted that the number of mortgages in arrears for 1–29 days increased by 36 per cent and those in arrears for 30–89 days rose by 33 per cent in Q2 2023 compared to the same quarter in 2022.

In contrast to the decline in mortgage applications and overall consumer credit demand, the demand for credit cards continued to show positive growth, rising by 5.9 per cent in Q2 2023 compared to the same period in 2022.

However, personal loan applications saw a decrease of 5.9 per cent and there was a significant decline in demand for buy now, pay later (BNPL) services, down by 26.3 per cent.

“The slowdown in demand for unsecured credit suggests that consumers are spending less in the face of compounding economic pressures,” Mr James said.

“While demand for personal loans declined year on year, the average limit per account, and the average credit score of applicants, has increased.”

However, he also noted that consumers who were not previously facing financial strain may have started consolidating their debts to better manage their credit payments.

Equifax's latest Broker Pulse Survey revealed that the broker community reported seeing signs of stress among their customers.

"According to our research, 28 per cent of brokers said their customers are most concerned about the impact of interest rates; 18 per cent said their customers are most concerned about the impact of their personal financial situation on borrowing capacity; and a further 14 per cent have customers who feel locked out of the property market," he said.

Despite the rise in mortgage arrears and growing financial concerns, Equifax’s data also showed that the number of financial assistance requests had declined post-pandemic but remained almost double compared to the pre-pandemic levels in 2019.

This was attributed to banks, lenders, and mortgage brokers actively encouraging consumers to seek help when needed.

"In times of financial hardship, brokers play an important role in educating their customers, supporting responsible lending and being trusted partners to consumers," Mr James said.

“Because of these interventions, up to 88 per cent of accounts requiring financial assistance have resolved their situation and returned to normal repayment or had some form of restructure, and we’ve seen year-on-year increases in resolution rates since 2019.

In addition, the volume of new financial hardship cases reported to the big four banks began to stabilise over the six months to March 2023, Equifax noted.

Since interest rates started increasing in May 2022, National Australia Bank (NAB) reached out to more than 500,000 customers, including 8,600 home loan customers considered to be most at risk.

However, NAB’s chief executive Ross McEwan said only 14 of them requested immediate help, indicating that many borrowers were handling the situation independently.

Meanwhile, Westpac’s CEO Peter King emphasised the importance of borrower engagement with the bank, particularly when a broker is not involved.

“We could put an annual nudge in, but I don’t think it would achieve what we think it will,” Mr King said.

[Related: Westpac eyes high DTI borrowers]