Australian consumers remain cautious in their attitude to credit

Veda Quarterly Business Credit Demand Index: September 2012

• Overall consumer credit demand falls 1% year on year.
• Credit card applications down 10% year on year.
• Personal loan applications up 7% year on year.
• Mortgage enquiries remain flat.

Sydney, Australia, 24 October 2012: Against the backdrop of the Federal Government's mid-year budget review yesterday, Veda, Asia Pacific's leading provider of consumer and commercial data intelligence and insights today released the results of its consumer credit demand index for the third calendar quarter of 2012. The results show that overall consumer credit demand contracted by 1.4% for the September quarter, continuing Australian consumers' trend of cautious spending and debt reduction. The index measures the change in credit demand for the September quarter compared to the same period in 2011.
This trend was driven by a continued drop in credit card applications, partially offset by a rise in personal loan applications.
On a state-by-state basis, credit card applications have fallen in all states for the quarter, reaching their lowest level in nine years. The sharpest declines have been in TAS (-14.5%), SA (-14.0%) and QLD (-13.2%). Consumer appetite for credit cards has also been weak in WA (-9%), NSW (-8.5%) and VIC (-8.6%).
Personal loan applications picked up notably in the September quarter. Western Australia (+12.4%) and the NT (+10.1%) had the strongest growth, followed by VIC (+8.2%), NSW (+6.7%) and QLD (+6.3%). Both SA and TAS showed growth in personal loan applications of close to 4%.
Personal loan applications have been helped by a notable rise in auto loans in the September quarter which has coincided with a 9% increase in new car sales for the month of September. The continued growth follows the June quarter which recorded the highest number of auto loan applications since 2007.
"While consumer credit demand showed slight growth in the June quarter as a result of RBA rate cuts and family assistance payments, the impact of the Federal Government's cash handouts has now faded with consumer credit demand decreasing relatively quickly in the September quarter," said Angus Luffman, General Manager of Consumer Risk at Veda.
"The data for the September quarter shows a similar trend to the one seen around the time of the GFC, in which stimulus pulls forward credit demand. In this instance the demand came through in the last weeks of the June quarter, followed by a decrease in July and August and a pick-up in September.
"The latest data suggests that lower interest rates are not having an effect on demand for consumer credit. In the current environment, the short term outlook for consumer spending and credit growth is modest. As households face increased expenditure, uncertainty around wage growth and levels of unemployment they will continue to be cautious, save and pay down debt. This trend is likely to continue given the Federal Government's pull-back on welfare benefits such as the baby bonus and health insurance rebates."
Mortgage enquiries are yet to see a significant rise as a result of RBA rate cuts, having flat-lined over the past year after a period of sharp decline in the previous two years.
Mortgage enquiries have barely risen over the past year, up just 0.6% in the September quarter but there are large differences in housing markets across the states. In the September quarter the NT (+21.0%) and WA (+11.5%) showed strong increases. The weakest states were TAS (-6.3%), SA (-6.0%), and VIC (-2.4%) while mortgage enquiries were flat in NSW (+0.9%) and QLD (0%).
"Mortgage enquiries are a good indicator of home buyer demand and housing turnover with movements in mortgage enquiries tending to lead movements in house prices in six to nine months," said Luffman.
"We have now seen three quarters of relatively flat mortgage enquiries after two years of decline. As foreshadowed by the stabilisation in Veda mortgage enquiries in recent quarters, the pace of year-on-year decline in Australian house prices is now easing. This is expected to continue, but the flat level of mortgage enquiries suggest house price growth will be kept in check over the coming months."