Coronavirus sees personal credit hit 12-year low while business credit spikes

author-avatar By on April 30, 2020
Coronavirus sees personal credit hit 12-year low while business credit spikes

Photo by Roger Cai on Unsplash

Personal credit growth declined 1.4% in March, the steepest monthly fall since the global financial crisis in November 2008.

Data from the Reserve Bank (RBA) revealed annual personal credit growth, which includes car loans and holiday loans, has fallen to its lowest level since June 2009. 

While the coronavirus fallout has crippled annual personal credit growth, it has propelled business credit growth 2.9% in March, after the RBA launched cheap funding to lenders to support small and medium sized business.

It's the biggest single monthly growth in business credit growth since January 1988. 

Monthly and annual housing credit growth remained steady, but investor borrowing marginally fell 0.1% monthly and 0.4% annually, with investors clearly spooked by the uncertain property landscape. 

Overall credit expanded by 1.1% in March to take annual growth to 3.6%, up from 2.4% at the end of 2019. 

Buying an investment property or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for investors.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
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Low Rate Home Loan - Prime (Principal and Interest) (Investment) (LVR < 60%)

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  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
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Yard Investment Loan (Principal and Interest) (LVR < 80%)

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Yard Investment Loan (Principal and Interest) (LVR < 80%)

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VariableMore details
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VariableMore details
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Smart Investor Home Loan (Principal and Interest) (LVR < 80%)

  • Option to add an offset for 0.10%
  • Fast turnaround times, can meet 30 day settlement
  • No on-going or monthly fees
FREE REDRAW FACILITY

Smart Investor Home Loan (Principal and Interest) (LVR < 80%)

  • Option to add an offset for 0.10%
  • Fast turnaround times, can meet 30 day settlement
  • No on-going or monthly fees

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of October 19, 2021. View disclaimer.

Westpac economist Andrew Hanlan said the figures reinforced that the reaction to the COVID-19 pandemic was multifaceted and non-linear, and expected businesses to ease their borrowing.

"Many firms will experience intense cash flow pressures as sales collapse due to shut-down and social distancing requirements but they continue to face many of their usual costs," Mr Hanlan said.

"In an effort to ease these cash flow pressures, some businesses have drawn down existing lines of credit.

"Beyond this initial reaction, businesses will be looking to cut costs, including cutting capital expenditure - which will reduce the need for borrowing." 

Mr Hanlan said although credit for housing grew in response to record low rates, coronavirus would quickly stall this progress. 

"The recent strengthening of housing credit growth reflects the rebound in new lending in response to lower interest rates and easier lending conditions," he said. 

"However, the COVID-19 pandemic will stop the housing upswing in its tracks - reflecting the combined impact of social distancing requirements; the collapse in consumer confidence; and the hit to household incomes.

"Later this year, as the economy begins to re-open, the housing sector will once again bounce back - but there will be some lasting impacts from the COVID crisis, notably higher unemployment." 

Personal credit has been sliding for years 

Although the plunge in personal credit growth in March can mostly be attributed to COVID-19, personal credit has been on a downward slump for some time now. 

A 2018 RBA report investigating trends in personal credit found that there had been a steady rise in non-performing personal credit, aka credit that doesn't incur interest. 

The central bank said the popularity of mortgages with redraw or offset accounts had led people to fund projects without a loan. 

"Drawing down on offset and redraw accounts enables borrowers to fund large expenditures such as home renovations, car purchases, or even pay off credit card balances, without having to take out a personal loan," it said. 

Additionally, the RBA found credit cards were increasingly being used for transactional purposes, rather than for borrowing, demonstrating a cultural shift. 

"The share of cardholders who always pay off their credit card balances in full each month has increased over the past decade," it said.

"In line with this, the share of credit card debt accruing interest has declined from 72% in 2007 to about 62% currently."

Recent credit card data from the RBA for December 2019 showed a 10% decline in balances accruing interest on credit cards from December 2018. 

Credit card debt fell from $31.6 billion to a near-13-year low of $28.5 billion (seasonally adjusted). 


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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