Fresh drop in demand for loans as cost of living crisis deepens

Wednesday, 15 June 2022

House prices are falling, and home loan repayments are rising, making many households nervous about borrowing more.

Nervous households are holding back on applying for new credit cards, loans and overdrafts, data from credit-tracking company Equifax shows.

There were 22% fewer new “unsecured” loans like credit cards, personal loans, and overdrafts opened in April compared to the same month last year.

Angus Luffman, Equifax’s managing director in New Zealand, said households were having to cope with high inflation, and rising interest rates, and that was making them more circumspect with their personal finances.

There was also a sharp decline in demand for home loans, as house prices continue to fall.

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The financial pressure on households looked likely to worsen, with more than half of home loans due to come to the end of their current fixed rates in the next nine to 12 months, said Luffman.

“The true impact of recent official cash rate increases is yet to be felt by many consumers,” he said.

“While renewed travel and some suppressed credit demand will contribute to consumer spending in 2022, inflation remains a concern,” he said.

“In particular, food price increases are placing a significant cost of living burden on many consumers.”

In March, food prices were 7.6 per cent higher than in March last year, Stats NZ data showed.

Equifax gathers data from power companies, telecommunications companies, banks, insurers and non-bank lenders, and compiles credit reports on both private individuals and businesses.

Businesses use these credit reports, and the credit scores Equifax allocates to individuals ranging from zero to 1000, to decide whether the do business with them, and on what terms.

That means Equifax can track increases and declines in the proportion of people missing payments on their bills and loans.

Luffman said the cost of living squeeze was feeding through into more people missing payments on loans, and their utility bills.

It also appeared to have led to people becoming more reluctant to switch power provider, or move between lenders seeking better deals.

That could in part be because changes made by the government to responsible lending regulations had made it harder for people to change.

“Since the changes, people are holding on to their current credit arrangements instead of looking for new ones,” Luffman said.

There were also signs of increasing stress in the business sector.

In April, there was an 11.1% rise in the number of businesses that were 30 days behind payments on loans and other accounts, compared to the previous month.

There was a 6.7% rise in businesses which were 60 days behind in payments.

Company liquidations remained low, Luffman said, but Equifax expected the number of liquidations to rise during the remainder of the year.