Consumer credit demand up 4.1% but debt expectations at three-year low

Consumer credit demand rose by 4.1% over the past year, according to new data from Veda, but a Dun & Bradstreet report shows expectations for household debt are at a three-year low.

Veda, which provides consumer and commercial data intelligence and insights, has released the results of its Quarterly Consumer Credit Demand Index for the fourth quarter of 2012.

The index, which measured the change in credit demand for this quarter compared to the same period in 2011, shows overall consumer credit demand increased by 4.1% over the past year.

While credit card applications are down 2% year-on-year, personal loan applications are up 10% year-on-year. Mortgage enquiries remain flat.

On a state by state basis, credit card applications have been weak in all states over the past year. Falls have been recorded in NSW (-1.5%), Victoria (-2.3%), Queensland (-2.5%), South Australia (-1.5%) and Tasmania (-5.3%).

WA is the only state where credit card applications are higher (by 1%) over the past year.

In contrast, growth in personal loan applications has been strong across all states over the past year.

Double-digit growth over the year to December was recorded in the Northern Territory (up 14.3%), WA (up 13%), Victoria (up 11.8%), South Australia (up 11%) and Tasmania (up 12%).

NSW and Queensland also demonstrated increases – up 8.6% and 6.2% respectively.

“Consumer credit is showing a solid pace of growth for the first time in over a year,” says Angus Luffman, Veda general manager of consumer risk.

“That reflects personal loans being taken out in greater numbers to finance a period of car-buying, with a sharp rise in motor vehicle purchases recorded over the past year.

“We saw the credit demand trend move upwards through the December quarter, which was all driven by personal loans, suggesting that Australian consumers were feeling good enough to borrow for some bigger-ticket purchases.”

But according to the latest Dun & Bradstreet Consumer Expectations Survey, expectations for household debt are at their lowest point in three years.

This nationwide survey was conducted online, among 1,218 respondents aged 18-64, to reflect the upcoming March quarter.

The survey shows 18% of respondents anticipate their debt will increase in the March quarter. This compares to 22% and 26% for the past two quarters.

Dun & Bradstreet said the findings correspond to a pool of recent data suggesting a shift in priorities away from discretionary spending and towards more prudent debt management.

The survey shows applications for new home loans, personal loans, credit cards and credit limit increases will be flat for the March quarter.

It also shows the number of people with a debit card account (77%) has increased to its highest point since September 2009 (67%) as consumers increasingly favour spending from savings ahead of credit.

Dun & Bradstreet chief executive Gareth Jones says the survey reflects a changing attitude from consumers towards debt.

“There is a greater degree of consideration being applied to each spending decision and a greater focus on spending within our means,” Jones says.

“The use of debit cards is becoming more common, as is a level of caution towards borrowing and debt in general.

“This attitude towards spending, especially on discretionary items, can have a negative knock-on effect for Australian businesses.”

His comments come on the back of NAB’s Monthly Business Survey for December. The survey shows business conditions “improved a touch” last month – up two index points to -4 – but remain difficult overall.