Consumer credit demand stays on the downward spiral

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Consumer credit demand continues to plunge as the Omicron outbreak, rising interest rates and tough lending rules affect people’s ability and appetite to borrow.

Equifax New Zealand’s consumer credit demand index for the three months ended March, showed overall credit applications were down 32 percent compared to the same period a year ago.

Home loan applications fell 42 percent and unsecured credit applications were down by a third.

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Consumer credit demand plunges
Photo: 123rf

However, Equifax’s local managing director Angus Luffman said a significant factor in the drop in demand was a sharp fall in consumers refinancing or changing their credit provider.

“It’s an important element because what it indicates is the preparedness of a consumer to go and make sure they’re getting the best deal or a product that they need for maybe perhaps an upgrade in something they want to do in their life or need in their life,” he said.

Refinancing activity was a key indicator of actual demand activity in the market, Luffman said.

Consumers refinancing their loans is at its lowest level since the start of the Covid-19 pandemic and down 80 percent from 2019 levels, according to the Equifax report.

“In these times it indicates that consumers are holding onto their existing relationships rather than perhaps [take] the risk or effort of going to try and get a new relationship,” Luffman said.

He said easing Covid restrictions should lift credit demand but there were question marks over what the new normal would look like.

“We would expect an improvement with reopening, particularly borders or moving from red to orange.

The question here is given the length of the lockdown that started with Delta … what does the new normal look like?”

Luffman said the answer to that is a bit of an unknown at this stage.

“Certainly the new normal with higher inflation and higher interest rates is expected to look different. How different? We don’t know.”

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