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Drop in credit demand signals flagging confidence

by Staff Reporter11 minute read
The Adviser

Staff Reporter

Credit card and mortgage applications fell in the last quarter of 2011, ending a year in which most Australians kept their wallets firmly shut.

“To see such a marked reduction in the use of credit by consumers in the period leading up to the Christmas holidays is unusual; the final quarter of the year is typically a time when there is stronger demand from consumers to obtain new credit, ” commented Angus Luffman, head of consumer risk at Veda.

Veda said its Consumer Credit Demand Index revealed a sharp decline in credit card applications across Australia in the last quarter of 2011 - which was down 3.5 per cent year-on-year. This was led by Queensland, which reported a 9.6 per cent fall in applications.


The credit reference company, which holds information on over 16.5 million credit active people and 4.7million companies and businesses in Australia, said this was in sharp contrast to earlier quarters in 2011 and pointed to a slowdown in consumer demand for credit.

“Contrary to the usual trend, all states saw demand for credit cards and personal loans retreat from what had been an upward trend throughout 2011, leaving credit demand flat on 2010,” Mr Luffman continued.

“As a leading indicator of economic activity and trends, the Index supports other economic data suggesting that consumers are being more circumspect.”

Personal loan applications grew modestly, up 2.4 per cent for the December quarter – the fifth consecutive quarterly rise, following 11 previous consecutive decreases dating back to March 2008.

“Interestingly, personal loan volumes started to exceed those of credit cards for the first time, for six out of the twelve months, culminating in a 3.8 per cent increase over the course of 2011,” Veda said.

“The rise may partially be attributed to a seasonal spike in demand for car loans around the end of the year, however, there was growing demand from a younger demographic in addition to a clear rise in Western Australia.”

“Mortgage enquiries fell for the eighth consecutive quarter, declining by a total of 9.9 per cent year-on-year, representing a continuation of the steady bottoming out recorded since the global financial crisis,” the company added.

“The decline was reflected in all states with the exception, New South Wales where mortgage demand grew by 4.7 per cent.”

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