Rising rates, inflation, bite into credit demand

Household borrowing fell 33 per cent in May compared to a year earlier. Photo / 123RF

Falling confidence and rising inflation and interest rates are eating into disposable incomes and contributing to sharp declines in consumer, mortgage and business lending.

The latest data from credit reporting company Centrix showed all new household lending in May was down 33 per cent on May last year and business credit demand was down 13 per cent.

Customer inquiries for Buy Now, Pay Later (BNPL) and new credit card demand were down 32 per cent and 22 per cent in May compared with the same month last year.

But while new residential mortgage lending was down 34 per cent compared with May last year, it was down only 4 per cent when compared to pre-pandemic May 2019.

Centrix managing director Keith McLaughlin said financial hardship cases also continued to drop.

"We're yet again experiencing another record low in hardship levels since December 2019 with only 8,750 borrower accounts flagged in financial hardship. So, while spending is low, people are generally not getting into severe financial distress," McLaughlin said.

He said further changes to the Credit Contract and Consumer Finance Act rules, which have been acting as a brake on lending since changes from Dec 1, will kick in from July 7.

Low company closure and liquidation rates show a level of resilience for the economy, he said.

Closures were down 37 per cent in this quarter, compared to the previous quarter, and company liquidations were also down 14 per cent year-on-year.

However, company credit defaults are starting to go up, specifically in the building and hospitality sectors, which have experienced the highest default rates since the final quarter of 2019.

Similarly, credit demand in the hospitality sector fell sharply at 21 per cent year-on-year, and agriculture credit demand is down 24 per cent year-on-year.

The Centrix data comes from 74 organisations, including banks and other contributors such as finance companies, telcos and utilities.