Demand for six types of loan tells story of economy of two halves

Demand for six kinds of credit tells a story of a recession of haves and have-nots, says Centrix boss Keith McLaughlin.

Centrix is a credit reporting company that tracks the state of individuals’ finances, compiling credit reports based on data passed to it by banks, power companies, and other lenders.

It has released figures showing rising arrears, with 12 in every 100 “credit active” individuals behind on at least one of their credit contracts, which includes power bills.

But as the high-inflation recession bites, Centrix has also been tracking demand for six kinds of credit, and each tells a story of households’ economic struggles.

Car loans

Demand for new car loans is buoyant, McLaughlin says.

There were 31% more inquiries for car loans in May this year than May last year, Centrix data shows.

But what’s good news for the finance companies and car dealers may be bad news for households.

Rising household costs, including rates, insurance, food and mortgage rates, could partly explain demand for loans, McLaughlin said.

“It could be because more people don’t have the money to buy the cars, and have to finance them,” he said.

There could also be some demand for replacing damaged vehicles lost in the storms in the early part of the year, he said.

And, as New Zealand had a fleet of ageing vehicles, there could be an increase in the number of vehicles being replaced as they come to their end of their lives.

Turners Cars had recorded significant increases in the number of cars being deregistered this year, with May seeing 15.34% more cars deregistered than in May the previous year.

Credit cards

Buy now, pay later lenders made a big play of the decline in popularity of credit cards, but they are back in demand.

Centrix data shows inquiries for new credit cards, and for increases in credit limits, were up 15.7% in May, compared to May last year.

McLaughlin said this probably reflects, at least in part, New Zealanders heading overseas for holidays.

He said during the Covid pandemic, a lot of credit cards were paid off, and many cancelled entirely.

But with air travel increasing again, travelling New Zealanders were seeking cards they could use to make payments while overseas.

He initially wondered whether rising credit card demand meant people were juggling debts, struggling to keep their heads above water.

But banking contacts told him people were taking out cards for overseas holidays.

Personal loans

Demand for personal loans is flat compared to May last year, down a modest 0.2%.

While the credit cards were a story of relative economic wellbeing, McLaughlin said the lack of demand for personal loans was likely a reflection of cash-strapped households cutting their consumer spending.

“People have pulled back their spending,” he said.

“The discretionary spending, borrowing to go out and buy a spa pool. I don’t think that’s happening any more.”

People may also have learnt a salutary lesson about borrowing as the proportion of people with missed payments on personal loans continuing to rise.

One in 10 personal loan accounts was in arrears at the end of May, Centrix data shows.

Buy now, pay later (BNPL) loans

BNPL lender Afterpay has been lobbying for light-touch regulation, but the sector continues to have a high rate of arrears on loans.

Demand for new BNPL accounts also remains subdued. Inquiries for new accounts was up 2.2% in May compared to May last year.

BNPL is often used by people to make consumer purchases, especially clothing, and McLaughlin reckons the spending pullback is happening because households have to cope with higher costs of things like food, mortgages and rent, which is making them cautious about increasing their borrowing.

Retail energy

There was a 15.7% rise in inquiries from people looking to join a new power provider.

While power providers are not strictly-speaking lenders, they do bill in arrears, meaning Centrix counts them as providing credit.

McLaughlin said households looking to lower their costs were shopping around for the cheapest power deals.

“People are saying ‘I need to do more to manage my household budget’,” he said.

Home loans

“Demand for mortgages activity remains quiet, with application inquiries down 3.4% year-on-year driven primarily by the ongoing cooling of the housing market,” McLaughlin said.

It was a simple tale of high home loan interest rates, and depressed prices, he said.

But Auckland mortgage adviser Campbell Hastie is expecting a turn-up in house sales in the spring as the weather starts to improve.

Hastie said he had been seeing an increase in people whose savings now equated to a larger proportion of the cost of a house, thanks to the drop in prices.