More consumers confident about their future economic prospects
The combined borrowing power of Kiwis has surpassed $300 billion for the first time. It has reached $306 billion (94% of GDP), an increase of $28 billion in the past year, according to Centrix’s latest data.
Centrix had seen non-mortgage lending trend downwards in the last two years due to changing consumer behaviour and reduced use of credit cards. Non-mortgage lending includes credit cards, vehicle financing, personal loans, and buy now pay later (BNPL) services.
However, Centrix’s June Outlook revealed that non-mortgage lending grew significantly in May 2021, up 38% month-on-month and exceeding $600 million for the first time since 2018.
The report also saw a sharp increase in personal loan arrears, increasing 0.6% month-on-month and reaching its highest point since March 2020. Overall, the number of accounts reported past due rose by 2% in May.
“While this increase does not indicate some consumer distress, arrears remain at historically low levels,” the report said.
Meanwhile, mortgage delinquencies plummeted in May for the second month running – with 16,400 (1.18%) residential mortgage accounts currently past due.
Read more: Million-dollar mortgages becoming more common in New Zealand
Centrix’s June Outlook stated that low-interest rates and a solid job market are helping Kiwis become more confident, driving economic growth.
Centrix managing director Keith McLaughlin explained that consumers who are confident about their future economic prospects become more comfortable using credit to purchase discretionary items – assured they can make future repayments.
By contrast, those who are less confident about their future economic prospects instinctively look to reduce their spending, pay down debt, and save.
“And clearly, consumers are in the mood to borrow and spend with non-mortgage lending exceeding $600 million in May, up 38% from the month prior,” McLaughlin said.
Read more: Mortgage growth drives record bank profits
However, McLaughlin expects signs of easing in confidence and a reduction in credit demand as the housing market starts to cool - new lending decreased by 3% from the month prior.
Applications for new mortgages have also cooled slightly in the last two months, but not as much as expected as they were still above pre-COVID-19 levels.
