Massive drop in demand for loans mirrors fall in consumer confidence

Friday, 22 April 2022

Finance Minister Grant Robertson says some Government moves have kept inflation lower, even though it has hit a 31-year high.

Falling consumer confidence has led to a huge drop in demand for loans, credit reporting company Equifax says.

Household applications for credit, which includes home loans, personal loans and applications to change power provider, dropped for the third quarter in a row, Equifax New Zealand managing director Angus Luffman said.

In the first three months of the year, demand for loans was down 32 per cent compared to for the first three months of 2021, Luffman said.

Applications for home loans was down 42 per cent.

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Rising living costs are eroding people’s standard of living, and they are becoming wary of taking on debt.

Lyn McMorran, chief executive of the Financial Services Federation said the lending industry had been hit by a double-edged sword of higher living costs, and government red tape.

“Lenders are seeing drastic reductions,” McMorran said.

Not only were lenders getting fewer applications, but more stringent responsible lending regulations had resulted in fewer applications being approved.

She did not expect the lending slump to result in redundancies in the lending sector as each loan was now requiring more resources to process.

An ANZ survey shows that by the end of March, consumer confidence in the economic outlook had sunk to a lower level than when Covid-19 first struck, and even the low it experienced during the global finance 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 said they were richer.

Luffman said withrising interest rates, CCCFA and other related lending constraints, home lending enquiries fell by 42% year-on-year for the March quarter.

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

Borrowers were sticking with their current lenders, with fewer seeking to refinance with other lenders.

“Demand for credit is being significantly impacted by a sharp fall in consumers re-financing or moving their credit relationships,” he said.

“Consumers refinancing their loans is at its lowest level since the start of the pandemic and down around 80% on 2019 levels.

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

But as well as economic uncertainty, and rising costs, Luffman blamed changes to lending regulations, which came into force on December 1, for borrowers being less likely to refinance to other lenders.

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

The biggest drop in lending applications was for credit cards, which fell by 36.2% compared to the March quarter of 2021. Personal loan applications dropped by 29.7%.