Financial year ends with strong credit demand

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Veda Quarterly Consumer Credit Demand Index: June 2015 Quarter

  • Overall consumer credit demand grew +10.7% (vs June quarter 2014)

    o Credit card applications up +15.0% (vs June quarter 2014)
    o Personal loan applications rose +6.4% (vs June quarter 2014)

  • Growth in mortgage applications picked up nationally to +12.5% (vs June quarter 2014)

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Sydney, Australia: 28 July 2015 – Released today, the Veda Quarterly Consumer Credit Demand Index, measuring the volume of credit card and personal loan applications, closed the financial year strongly with a 10.7% lift in consumer credit demand in the June quarter compared with the same period last year. 

Growth was driven by demand for credit cards, up 15.0% for the quarter, as well as a 6.4% rise in demand for personal loans compared with the June quarter 2014. 

The annual growth rate has been rising steadily for 12 months, peaking in the June quarter. Angus Luffman, Veda’s General Manager of Consumer Risk, said the high demand for credit cards could be attributed to several factors.

“The continued high level of campaign activity on the part of major card issuers along with the benefits of product innovation, particularly contactless payments, is driving the applications for cards as consumers seek out the product that most suits their needs,” Mr Luffman said.                                                                                                                   

“While the number of payments made using credit cards has been rising strongly, repayments on credit cards have also been strong, with credit card balances accruing interest still showing a fall over the past year. Consumers remain cautious about running up credit card debt.

“The RBA’s latest data shows the number of credit card accounts rose 1.9% and the number of purchases per account grew by 7% in the March quarter compared with the same period in 2014.  This is consistent with previous RBA data that shows while the number of purchases per account is growing, the average value of transactions per account is falling,” Mr Luffman said.

The stronger personal loan applications data coincides with a stronger household goods retailing environment as well as a pick-up in car sales. Car sales had a good month in June, with annual growth of 4.0%, up from 1.0% in May. However, further falls in the Australian dollar in recent months may continue to place upward pressure on car prices.

The Veda Quarterly Consumer Credit Demand Index provides an early indication of movements in consumer spending and retail sales.

Growth in credit card applications was up +15.0% in the June quarter. Application numbers lifted significantly across all states and territories. South Australia (+18.6%) and NSW (+18.1%) experienced the strongest growth, followed by the ACT and Tasmania (both +15.3%), Victoria (+13.5%), WA (+13.2%), Queensland (+12.2%) and the NT (+9.6%).

Personal loan applications rose nationally, up +6.4% in the June quarter. Growth was strongest in Tasmania (+10.0%) and the NT (+9.4%), followed by Victoria (+7.6%), Queensland (+7.0%) and NSW (+6.5%). The pace of growth was slower in WA (+4.8%) and SA (+2.6%), while personal loan applications remain close to flat in the ACT (+0.2%).

Mortgage application growth picked up for the second consecutive quarter in 12 months in the June quarter. The annual rate of growth in mortgage applications picked up from 5.5% in the March quarter to 12.5% in the June quarter. This is approaching the peak rate of annual growth of 14.4% last seen in the December quarter 2013.

Mortgage applications are not part of the Consumer Credit Demand Index, but are a good lead indicator of future activity in home buyer demand and housing turnover. Historically, movements in Veda mortgage demand have tended to lead movements in house prices by around six to nine months.

“Two interest rate cuts by the Reserve Bank in the June quarter drove mortgage applications to pick-up strongly. The strength in mortgage applications suggests there is still some strong interest from buyers in the housing market, particularly in NSW which continues to see the strongest growth,” Mr Luffman said. 

“A low interest environment encourages consumers to shop around for a better deal on mortgage finance, so some of the growth in mortgage demand can be explained by consumers switching between providers,” Mr Luffman said.

Mortgage applications growth picked up in all states and territories except WA in the June quarter. The annual growth rate was strongest in NSW (+21.0%), followed by ACT (+19.5%), Victoria (+13.3%), Queensland (+11.7%) and SA (+8.1%).  Growth was flat in Tasmania (+0.6%), while mortgage applications fell in WA (-5.3%) and the NT (-4.9%) as mining activity weakened resulting in slower economic activity.

“Overall, Veda’s latest credit demand data suggests that strength in interest rate sensitive sectors such as retail and in the housing market is continuing, which should help to support growth as Australia’s economy responds to the downturn in mining-related construction,” Mr Luffman said. 

NOTE TO EDITORS
The Veda Quarterly Consumer Credit Demand Index measures the volume of credit card and personal loan applications that go through the Veda 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 Veda media releases: Veda Indices releases are intended as a contemporary contribution to data and commentary in relation to credit activity in the Australian economy. The information in this release is general in nature, is not intended to provide guidance or commentary as to Veda’s financial position and does not constitute legal, accounting or other financial advice. To the extent permitted by law, Veda provides no representations, undertakings or warranties concerning the accuracy, completeness or up-to-date nature of the information provided, and specifically excludes all liability or responsibility for any loss or damage arising out of reliance on information in this release including any consequential or indirect loss, loss of profit, loss of revenue or loss of business opportunity.