Non-mortgage borrowing including personal loans has topped $600 million, the highest level in three years, a new report shows.
The June Centrix Credit Indicator Outlook released on Tuesday, shows non-mortgage borrowing, including personal loans, buy now pay later, vehicle financing and credit cards, was up 38 percent in May compared to April - the highest level since 2018.
Centrix managing director Keith McLaughlin said the latest data indicates Kiwis are borrowing more to buy cars and other luxury items. Use of buy now, pay later has increased slightly and demand for credit cards is flat.
He puts the rise in consumer borrowing on non-mortgage items down to improving economic performance and increased job security following COVID-19. As squirrelling money for a rainy day becomes less of a priority, purse strings are starting to loosen, he said.
"That’s the strongest it’s been all year...when it increases, it’s generally off the back of confidence," McLaughlin said.
The rate of interest paid on personal loans (including motor vehicle finance) is generally higher than mortgage interest rates. But Centrix data shows the rise in non-mortgage borrowing is linked to people with higher credit scores, indicating affordability is less of an issue.
A higher credit score indicates someone can afford the repayments (as they’ve repaid loans in the past), and are therefore less likely to fall into financial hardship.
"At the moment, credit scores are very high...the people who are borrowing money tend to be those who have a higher credit score," McLaughlin added.
The current shortage of properties listed for sale (realestate.co.nz reports in June, stock was down 33.3 percent nationwide) has impacted new mortgage lending: Centrix figures show a $1 billion drop over the last few months, to just below $7 billion in May.
"The last three months, we’ve seen a decline in new mortgage lending (this excludes top-ups for renovations)," McLaughlin added.
When the COVID-19 mortgage holiday (‘mortgage deferral’) scheme ended on March 31, Centrix confirmed 11,900 mortgage borrowers under the scheme were re-classified as under ‘hardship’.
Compared to when mortgage deferrals were at their peak during COVID-19, 75 percent of loans in deferral went to principal and interest payments and 6 percent went to interest-only, leaving 2 percent in hardship, Centrix said.
"It’s pleasing to see how the lenders and the borrowers have managed to come off that hardship without going into default," McLaughlin added.
Late payments on personal loans (arrears) increased 0.6 percent in June, but were still at "historically low levels", Centrix said.
Latest data indicates while non-mortgage lending is on the rise, "the NZ consumer is being responsible around the amount of money they’re borrowing," McLaughlin said.
Infometrics senior economist Brad Olsen confirmed increased consumer spending was driven by improving economic performance and jobs growth.
Tax filing data shows over 44,000 additional jobs were created over the last year. Gross Domestic Product (GDP) was up 1.6 percent in March, driven by a "massive surge" in private household consumption (5.4 percent, according to seasonally adjusted figures. Consents for home alterations rose 11 percent over the last 12 months.
"Overall I think the numbers are showing that people are spending and they’re putting more money out there (both in consumer spending and in lending)," Olsen said.
He notes supply chain issues are causing prices on some goods to rise, captured in latest spending figures.
"Cars for example [are] costing more so it’s not only that people are buying more, they’re also paying more for what they’re buying."