Credit card demand increases as mortgage demand drops

At the same time, arrears for both mortgage and auto loans had increased, with substantial growth in arrears of less than 90 days past due, as previously noted by credit ratings company Fitch, which expects more arrears in late 2023.

Sharing this sentiment, general manager advisory and solutions at Equifax, Kevin James, said there are clear signals that the cost of living and interest rate rises are impacting consumers.

“Growth in the earlier delinquency categories (>90 DPD) indicate arrears are expected to rise further in the coming months,” Mr James added.

In contrast, while mortgage demand had gone down, credit card applications in Australia and New Zealand had increased by 20.9 per cent compared to the same period last year.

However, credit card arrears have remained stable compared to 1Q22 but have marginally increased over the past three quarters, which could lead to future increases, the report showed.

This increase in credit applications has contributed to the overall rise of unsecured credit demand by 7.5 per cent, which includes credit cards; personal loans; and buy now, pay later schemes. However, demand for BNPL has declined by 2.4 per cent.

As personal loan applications have also increased by 4.2 per cent, arrears have reached pre-pandemic levels, indicating that consumers are struggling to repay their loans.

In addition, personal loan limits also increased with new limits up 11 per cent compared to Q1 last year.

“Credit card account limits are also increasing, with limits on new accounts up 55 per cent compared to last year,” Mr James said.

“This suggests consumers are taking on more credit that they are then struggling to repay.”

The data followed the latest NAB Consumer Insights report for the first quarter of 2023, which revealed that financial hardship had reached a six-year high, with one in four Australians struggling “very much” to make ends meet, up from 22 per cent in 4Q22.

Almost one in four people who experienced hardship missed a bill payment, while one in 20 missed a mortgage repayment.

In addition, 6 per cent of people reported hardship due to mortgage payments, up from 5 per cent in 4Q22 and 3 per cent one year ago.

In addition, the number of people unable to meet minimum credit card repayments or not having enough to pay off personal loans both rose from 6 per cent to 8 per cent in Q1.

The report concluded that financial hardship is a growing concern for many Australians and that urgent action is needed to address the issue.

The share of women struggling also climbed to 28 per cent up from 25 per cent in 4Q22.

Meanwhile, one in four Australians believe they are struggling “very much” to make ends meet, up from 22 per cent in 4Q22.

[Related: Arrears begin to tick up Fitch Ratings]