KEY POINTS:
The overall picture of the economy contains little good news for those hoping predictions of a coming recession are exaggerated, say credit experts Veda Advantage.
Loan defaults are up sharply and new loan applications are down, their latest report shows.
Consumer defaults were up 7 per cent in
the first half of the year compared to the same period last year and commercial defaults leapt 24 per cent.
There was a 21 per cent drop in mortgage applications in the first half of 2008 compared to the same period last year.
Total credit enquiries were down 10 per cent in the same period.
A number of indices in their latest financial summary reveal how the purse-strings are being drawn ever tighter by New Zealand consumers.
Here are some of the main points in the bi-annual report:
Hire Purchase and Personal Loan Applications
Total consumer credit enquiries for the first six months of 2008 are down 10 per cent on the same period last year, making 2008 the third consecutive year of decline in consumer credit applications. The number of applications for hire purchases from January to June this year has also dropped by 9.5 per cent over the equivalent period in 2007, continuing a steady decline in hire purchase lending over the last four years. Personal loan applications are also down 16 per cent, which will further impact the beleaguered retail sector.
Veda Advantage NZ Director John Roberts said, "The decline reflects the current lack of consumer confidence. Households are having to contend with steep rises in living costs, which has lead to a decline in purchases of big ticket goods that typically require hire purchases and personal loans. That new washing machine or car is too much of an additional burden for many households to shoulder at the moment."
Credit Card Inquiries
Applications for credit cards, however, were up 10 per cent, with Generation Y in particular turning to cards as an alternative form of unsecured credit; there has been a 13 per cent increase in applications amongst those aged between 18 and 27.
"There is much more flexibility in a credit card than a fixed-term loan, so we are witnessing a rise in the number of applications as people look to transfer debt to cards. Credit card providers are also able to offer incentives like low interest rates which make cards a more appealing proposition", said Roberts.
Mortgage Inquiries
The parlous state of the housing market has been one of 2008's continuous stories, and the first half of 2008 has seen a 21 per cent drop in mortgage applications over the same period in 2007. An increase in the number of people applying for mortgages from March to May hinted at some stabilisation in the market, but a 10 per cent drop off from May to June reinforces predictions that any significant recovery is unlikely in the next 12-18 months.
"Without doubt, things look quite bleak for the property market at the moment. We saw a 7 per cent rise from March to May, but that is attributable to speculative buyers looking to capitalise on market conditions, and the recent move by banks to reduce their two year fixed term interest rates. The reality is that things are likely to get worse before they get better", said Roberts.
Defaults
The total number of consumer defaults is up 7 per cent on the first 6 months of last year. Figures show the largest portion of this growth came from the Generation Y group whose defaults increased by 8 per cent when compared to the same period in 2007. Defaults have noticeably increased in certain sectors, with sharp jumps in the number of people defaulting in basic bill payments such as phone (148 per cent) and internet (100 per cent).
In the commercial sector, defaults for January to June 2008 have leapt 24 per cent on January to June 2007, an indicator that small to medium businesses (SMEs) are struggling to meet financial obligations as the economy slows.
"We're now starting to see the impact that increased living costs are having on households who are starting to feel the pinch, unable to meet required payments."
"Commercially, a 24 per cent increase in defaults is fairly significant, and a lot of businesses are struggling. SMEs are a leading indicator for the state of the economy, and the fact that we've seen such a substantial rise in the number of defaults in the commercial sector is a worrying sign that we are slipping into recession", concluded Roberts.