Massive decline in loan demand reflects falling consumer confidence

Declining consumer confidence has led to a sharp drop in demand for loans, according to credit reporting firm Equifax.

Household credit applications, which include home loans, personal loans and requests to switch electricity providers, fell for the third consecutive quarter, Equifax New Zealand chief executive Angus Luffman said.

In the first three months of the year, loan demand was down 32% from the first three months of 2021, Luffman said.

Home loan applications fell by 42%.

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Lyn McMorran, chief executive of the Financial Services Federation, said the lending industry had been hit with a double-edged sword of rising costs of living and government bureaucracy.

“Lenders are seeing drastic reductions,” McMorran said.

Not only were lenders receiving fewer applications, but stricter responsible lending regulations had resulted in fewer applications being approved.

The rising cost of living is eroding people's standard of living, and they are becoming wary of going into debt.

ROBERT KITCHIN/Stuff

The rising cost of living is eroding people’s standard of living, and they are becoming wary of going into debt.

She did not expect the loan crisis to lead to layoffs in the lending industry, as each loan now required more resources to process.

An ANZ survey shows that by the end of March consumer confidence in the economic outlook had fallen to a level lower than when Covid-19 first hit, and even to the lowest it has experienced during the global financial crisis in 2008.

More people responding to the ANZ Roy Morgan consumer confidence survey said they were worse off compared to March last year than they said they were wealthier.

Luffman said with rising interest rates, CCCFA and other related lending constraints, home loan applications fell 42% year-over-year for the March quarter.

But home loan applications were still higher than in 2019 and the first half of 2020, he said.

Borrowers remained loyal to their current lenders, and less sought to refinance with other lenders.

“Credit demand is heavily impacted by a sharp decline in consumers refinancing or shifting their credit relationships,” he said.

“Refinancing of their loans by consumers is at its lowest level since the start of the pandemic and down about 80% from 2019 levels.

“The decline in refinancing activity began with the outbreak and the Delta lockdown in August 2021, dropping to near March 2020 levels,” he said.

But in addition to economic uncertainty and rising costs, Luffman blamed changes to lending regulations, which came into force on December 1, because borrowers are less likely to refinance with other lenders. .

“Such a large drop indicates consumers are clinging to their current relationships, rather than taking the risk and effort of trying to get a better deal elsewhere,” he said.

The biggest drop in loan applications was for credit cards, which fell 36.2% from the March 2021 quarter. Personal loan applications fell 29.7%.

James V. Hayes