Consumer credit demand has plummeted overall, but demand for home loans remains strong, new data shows.
Equifax’s latest Quarterly Consumer Credit Demand Index for the September 2020 quarter shows a near 30% decline in demand for consumer credit compared to September 2019.
The results show a decline in every category, except for home loans, which rose by 16.3% in the quarter compared to a year ago.
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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%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
According to Equifax's data, credit cards suffered the biggest drop of 39.5%, which is not unexpected given the well-publicised fall in credit card use over the pandemic months.
Buy now, pay later, despite reported increases in customers by the likes of Afterpay and Zip, as well as some recent negative press about customers missing repayments, also saw a 13.2% annual decline.
The final two categories - car loans and personal loans - fell by 15.3% and 32.3% respectively.
The Credit Demand index by Equifax measures the volume of credit applications for credit cards, personal loans, Buy Now Pay Later (BNPL), and auto loans.
Mortgage demand includes loans for new properties as well as refinancing.
How each credit category performed in each state. Source: Equifax.
Why did credit demand fall so much?
Kevin James, General Manager Advisory and Solutions at Equifax, said government stimulus measures like JobKeeper and JobSeeker have reduced the need for Australians to rely on credit.
"This is particularly evident when looking at the volume of personal loan applications, which have dropped by around 30% for two consecutive quarters," Mr James said.
"As government stimulus starts to pull back, we anticipate personal loans may experience a revival, particularly among sub-prime borrowers who may not be eligible for other kinds of financing.”
Mortgage demand and applications, on the other hand, increased in every single state, even Victoria, which saw a 1.3% annual increase (the smallest among the states) despite being in lockdown for weeks on end.
Mortgage applications rose by 16.3% on average, led by Western Australia at almost 50% (48.3%).
The ACT also recorded an impressive 31.6% spike, while NSW was up 14%.
According to Equifax, home buyer activity is expected to further strengthen over the next quarter provided the virus remains contained, and interest rates remain low, especially now that Victoria is moving out of stage-four restrictions.
"Historically, movements in Equifax mortgage application demand data has led movements in house prices by around six to nine months," it said.
See also: ANZ says House prices to rise 9% in 2021
Victoria actually had the largest decrease among all categories except buy now, pay later, which fell by 24.8% in Tasmania.
For the first time in more than eight quarters, the drop in demand for such platforms extended across every Australian state and territory.
“Despite the subdued interest in Buy Now Pay Later, there have been some interesting movements across generations. In the September quarter, baby boomers had the lowest share of enquiries for BNPL but the highest rate of growth," Mr James said.
"Generation Z accounted for a quarter of all enquiries even though they only made up 5% of the working adult population.
"And digital-savvy Gen Y has shown the largest shrink of any generation."
In Victoria, auto loans declined by more than 42%, and there was less demand generally in the eastern states.
In the market for a new car? The table below features car loans with some of the lowest fixed interest rates on the market.
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): Credit Union Australia, 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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