Credit demand dips as consumers begin to scale back

Equifax Quarterly Consumer Credit Insights: June 2023

• Unsecured consumer credit applications declined (-8.3% vs June quarter 2022)
  • Credit card applications grew (5.9% vs June quarter 2022)
  • Personal loan applications down (-5.9% vs June quarter 2022)
  • Buy now pay later applications declined (-26.3% vs June quarter 2022)
• Secured consumer credit applications declined (-3.3% vs June quarter 2022)
  • Mortgage applications down (-2.8% vs June quarter 2022)
  • Auto loan applications reduced (-5.4% vs June quarter 2022)

SYDNEY – 25 July 2023 – Consumers’ reliance on unsecured credit has slowed, while mortgage arrears continue to climb according to the latest Equifax Quarterly Consumer Credit Insights - July 2023 (formerly Consumer Credit Demand Index).

Released today by Equifax, the global data, analytics and technology company and leading provider of credit information and analysis in Australia and New Zealand, the Index measures the volume of credit applications for credit cards, personal loans, buy now pay later (BNPL), mortgages and auto loans.

Unsecured credit demand, comprising credit cards, personal loans and buy now pay later, decreased -8.3% in the June quarter. Credit card demand continued to show positive growth, up +5.9% in Q2 2023 versus the same period 2022, while personal loan applications (-5.9%) and demand for BNPL declined (-26.3%).

Kevin James, General Manager Advisory and Solutions, Equifax, said: “The slowdown in demand for unsecured credit suggests that consumers are spending less in the face of compounding economic pressures.

“While demand for personal loans declined year-on-year, the average limit per account, and the average credit score of applicants, has increased. This could indicate that consumers who previously weren’t feeling financial strain have begun to consolidate their debts, so they can better manage their credit payments,” Mr James said.

Secured credit demand, derived from mortgages and auto loans, decreased -3.3% in Q2 2023 compared to the same period in 2022. Mortgage demand was relatively stable, declining -2.8% in Q2 2023, while auto loans fell -5.4%. 

“The effects of multiple interest rate rises are becoming more evident. We are seeing accelerated growth in mortgages in early arrears, with a 33% uptick in mortgage accounts that are 30-89 days past due, compared to 22% last quarter,” Mr James said.

The prolonged challenges that have been facing the auto industry are taking a toll, with auto loan arrears hitting a five-year high in Q2 2023. 

“The significant increase in auto loan arrears suggests consumers are struggling to repay auto loans as they grapple with the high cost of living - a trend that we are also seeing in international markets including the US and Canada,” Mr James added.

IMAGE 1: Consumer Macro Credit Demand – Quarterly YOY

Source: Equifax

IMAGE 2: Consumer Credit Applications – By Type (Indexed to Nov 2019)

Source: Equifax

^The data has been re-indexed from 2018 to account for the recent inclusion of Buy Now Pay Later applications:
Re-indexed data to commence in 2018 (previously 2015)
Added buy now pay later and auto loan credit enquiries as a separate trendline (previously rolled up into personal loans)

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NOTE TO EDITORS
The Quarterly Consumer Credit Insights  by Equifax measures the volume of credit card, personal loan applications, Buy Now Pay Later, mortgages and auto loan applications that go through the Equifax Consumer Credit Bureau by financial services credit providers in Australia. Credit applications represent an intention by consumers to acquire credit and in turn spend; therefore, the index is a lead indicator. This differs to other market measures published by the RBA which measure credit provided by financial institutions (i.e. balances outstanding).

DISCLAIMER
Purpose of Equifax media releases:
The information in this release does not constitute legal, accounting or other professional financial advice. The information may change, and Equifax does not guarantee its currency or accuracy. To the extent permitted by law, Equifax specifically excludes all liability or responsibility for any loss or damage arising out of reliance on information in this release and the data in this report, including any consequential or indirect loss, loss of profit, loss of revenue or loss of business opportunity.