The latest Credit Demand Index released by the credit reference firm Veda suggests that consumers in Australia have eased up on their credit applications. Sluggish growth in income and weak consumer confidence are at play.
The June quarter index, released on Thursday, July 10 slipped three percent this year as compared to that of 2013. The decline marks the end of the two-year growth streak of credit demand among Australian consumers. The previous quarter in fact, (March 2014) saw credit demand reach historically high values since June 2008.
The Veda Quarterly Consumer Credit Demand Index
Veda, the nation’s largest credit reference firm, tracks the number of personal loan and credit card applications processed through its Consumer Credit Bureau to prepare the credit demand index. Released every quarter, the index provides foresight into what lies ahead in terms of sales (retail) and consumer spending.
While the overall demand fell three percent in the June quarter, applications for new credit cards increased by 1.6 percent. What drove the three percent dip in credit demand was the 7.1 percent decrease in the volume of personal loan applications.
Drivers of Decreased Credit Demand
According to Angus Luffman, the general manager of Veda’s consumer risk wing, the May Budget contributed to a lowered consumer confidence. Retailers saw less cash flowing in, in the June quarter as a result and the unusually high temperature didn’t help with winter and autumn sales. Further, a weak labour market caused income growth to flatten out, leaving very few consumers making a credit demand.
In the previous quarter, credit card applications grew by 6.1 percent and loan applications grew by 0.3 percent. With car sales slipping two percent below its 2013 figures, reduced auto sales contributed to the 7.1-percent decline in personal loan applications. Other lines of personal credit too saw a dip in volume, consistent with the overall trend of personal loan growth.
The firm also found that home-loan applications jumped up 6.1 percent in the fiscal year through 2013. Though not officially a part of the Consumer Credit Demand Index, the volume of mortgage applications do provide insight about the state of residential real-estate market.
The volume of mortgage enquiries began picking up early last year and has stayed strong, especially in the eastern states. Residential property prices have been high and revenue from the share market has been strong – promoting an increase in wealth of Aussie households. Add to it the fact that interest rates have been at their lowest and the outlook for good retail sales and consumer spending stays strong.