Growth in consumer credit demand slows but remains in positive territory

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Veda Quarterly Business Credit Demand Index: March 2016 Quarter

  • Overall consumer credit applications up +4.7% (vs March quarter 2015)

    o Growth in credit card applications slows to +2.0% (vs March quarter 2015) 
    o Personal loan applications rise +7.6% (vs March quarter 2015)

  • Growth in mortgage applications falls to -0.3% (vs March quarter 2015) 

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Sydney, Australia, Friday, 8 April 2016: Released today, the Veda Quarterly Consumer Credit Demand Index, measuring the volume of credit card and personal loan applications, showed a moderate 4.7% lift in consumer credit demand in the March quarter compared with the same period in 2015.

The softer growth experienced in the March quarter was driven by easing growth rates for both credit card applications, which slowed from 7.3% in the December quarter to 2.0% in the March quarter, and personal loan applications, which decreased to 7.6% in the March quarter, from 11.9% the previous quarter.

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

Angus Luffman, Veda’s General Manager of Consumer Risk, said that the softer demand for consumer credit in the March quarter indicated a levelling-out of the market after an extended period of strong growth.

“The decrease in consumer credit demand in the March quarter comes off the back of a period of high growth, and was largely a result of softer auto loan applications. Furthermore, the March quarter 2015 saw very strong credit card activity, which was not experienced this quarter. In the coming year, we may see a period of slower growth than has been achieved previously,” Mr Luffman said.

“Following the Christmas period bounce, retail spending growth has slowed whilst remaining positive. Similarly, growth of household goods retail sales and car sales have both decreased, but are still sitting at a reasonable, positive rate of annual growth. This activity is consistent with the easing in the growth of personal loan applications.

“Consumer sentiment remains relatively neutral, in a continuation of the trend we have seen over the past six months. This circumspect attitude of consumers is reinforced by the use of credit cards, where the trend of repayments exceeding transactions continues to build momentum,” he said.

“This leads to a contradictory position where credit cards are being used more every day, but the total balances outstanding are declining.

“The consumer is benefitting from product innovation, while turning their credit card into an everyday transaction tool. Interestingly, while the total balances outstanding have declined, the total cards on issue per Australian adult are actually growing for the first time in a number of years,” Mr Luffman added.

Veda’s latest mortgage application data shows a third consecutive quarter of significant decrease in growth in mortgage applications, which fell to an annual rate of decline of 0.3% in the March quarter.

While the latest data indicates a more subdued housing market in 2016, Veda has seen an upwards shift in the relative share of mortgage applications by consumers in younger demographics.

“From late 2012 to the December 2015 quarter, we have observed that the proportion of mortgage applications by the youngest demographic (18-24) have decreased; at the same time, the proportion of applications by the oldest demographics (55-64 & 64+) have increased. This would appear to support the growth of investment lending over owner-occupier, particularly impacting younger consumers,” Mr Luffman said.

“In the last two quarters this trend has ceased and is showing early signs of reversing. This is likely indicative of the impacts of the Australian Prudential Regulation Authority (APRA) driving policy changes on investment lending and possibly the start of first home buyers becoming more active in the market,” he added.

Growth in credit card applications slowed sharply in all jurisdictions in the March quarter (+2.0%) compared to March 2015. The strongest growth in credit card applications in the March quarter was seen in WA (+4.2%), followed by NSW (+3.4%), the ACT (+1.6%), Queensland (+0.9%), Victoria (+0.8%), SA (+0.8%), and the NT (+0.3%). Tasmania (-1.0%) recorded a fall in credit card applications in the March quarter.

Growth in personal loan applications also slowed in the March quarter. The strongest growth in personal loan applications was once again seen in Tasmania (+9.5%), followed by Queensland (+8.8%), Victoria (+8.3%), NSW (+7.6%), WA (+6.1%), SA (+5.6%), the ACT (+5.1%), and the NT (+1.3%).

Demand for mortgages cooled for the third consecutive quarter in the March quarter. The annual rate of growth in mortgage applications has now slowed from 13.6% in the June quarter of 2015, to an annual rate of decline of 0.3% in the March quarter of 2016.

The sharpest slowdown in mortgage application growth was seen in NSW. In the June quarter 2015, mortgage application growth in NSW was as high as 21.7%; it is now showing an annual rate of decline of 1.2%.

Mortgage applications have also declined over the past year in Tasmania (-10.8%), WA (-13.9%), and the NT (-13.9%). Elsewhere, mortgage applications growth was still seen in Victoria (+5.9%), SA (+2.5%), Queensland (+1.6%), and the ACT (+0.5%), but growth is down significantly from recent peaks in all of these jurisdictions. 

Historically, movements in Veda mortgage applications have tended to lead movements in house prices by around six to nine months, with mortgage applications a good indicator of home buyer demand, and an excellent indicator of housing turnover. 

The cooling demand for mortgages is consistent with other recent indications of cooling in the housing market, including auction clearance rates that are down from last year’s peaks in Sydney and Melbourne, and a slowdown in house price growth.  

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.