Vehicle lending hits wall, mortgage lending crashes

Wednesday, 1 April 2020

The car loan industry has ground to an almost complete halt.

The lockdown has slammed the brakes on vehicle lending.

Inquiries about new car loans have dropped by 93 per cent since the country moved onto coronavirus Alert Level 4 on Monday, March 23, data from credit reporting bureau Centrix shows.

Loan inquiries have crashed in more steeply than either after the 1987 sharemarket crash or the global financial crisis, said Keith McLaughlin, chief executive of the Centrix credit reporting company.

Every other loan segment has seen precipitous declines in loan inquiries as a result of the massive economic disruption caused by widespread drops in incomes, lay-offs, and uncertainty about the future, with demand for new bank loans down 62 per cent.

Inquiries for new bank loans was probably the result of people seeking emergency credit, or getting loan extensions in place in case they weren't available later, said Centrix chief executive said Keith McLaughlin.

Open homes are banned, and house sales have dried up.

* Coronavirus mortgage 'holidays' can save homes**

'I suspect some of the new bank lending might be increases in existing loans, rather than new mortgages,' McLaughlin said.

This could also include people seeking mortgage 'holidays', which are periods during which borrowers do not make principal, or principal and interest payments, to their lender.

The missed payments are added to their loans and have to be repaid later.

The handful of vehicle loans still going through most likely represented deals that had been done before the country moved onto Alert Level 4, McLaughlin thought.

Under Alert Level 4 only the essential parts of the vehicle industry can remain continue including supplying parts and repairing vehicles used in the supply of essential services.

Credit agencies collect data from the likes of banks, other lenders, and power companies on people borrowing and payment habits, and create credit reports, and give credit scores of between zero and 1000, for individuals and businesses.

These can be accessed by lenders and other businesses to help them decide whether to give loans and services to people asking for them, and at what price.

The data they collect gives credit reporting agencies an eagles-eye view of people's financial behaviour during the coronavirus crisis.

McLaughlin said because shops were shut companies in the higher-ranking non-bank lenders like Latitude Financial Services- which offers the GEM Visa cards- have seen a collective drop of 86 per cent in applications for credit.

Buy-now, pay-later finance has suffered only a slightly lower drop in demand.

The drop among lower-tier lenders, including payday credit lenders, was 72 per cent.

McLaughlin worked in the credit reporting industry through both the 1987 sharemarket crash and the global financial crisis, and neither had as extreme an effect on loan demand as the coronavirus lockdown, which is forecast to drive unemployment up rapidly.

'They were not so bad because we still had people out there making decisions,' McLaughlin said.

The global financial crisis hit certain sectors, but unemployment stayed relatively low, and the shops were still open.

Assets like homes and vehicles continued to change hands during both the earlier crises, which was not happening during the lockdown.

The only sector of credit inquiry that continued to see a lot of activity was the power sector.

Credit inquiries had dropped by just 39 per cent. Power companies check people's credit scores when deciding whether to take them on as customers, and on what terms.

McLaughlin believed households were using the lockdown to shop around for better power deals in a bid to reduce household costs.

'A 39 per cent drop means were are still seeing 61 per cent of the activity we were before the lockdown' he said.

So far there was no sign of a wave of missed loan and power bill payments being reported, McLaughlin said.