Second half-yearly economic review

Media release

Veda Advantage releases second half-yearly economic review as early signs point to realities of 2009

24 February 2009 – Veda Advantage, New Zealand’s largest credit information provider, today released its biannual snapshot of the New Zealand economy, based upon comprehensive information collated from its Credit Bureau comparing key indicators from July to December 2008 with previous 6 month periods.

Summary highlights*

*Comparison between July-Dec 2008 and July-Dec 2007 unless otherwise stated

• Total consumer credit applications: down 12%

• Hire Purchase applications: down 11% on July-Dec 2007, 11% on Jan-June 2008

• Personal loan applications: down 15%

• Mortgage applications: down 20%

• Consumer defaults: up 11% on Jan-June 2008 – 20% increase amongst Baby Boomers for that period

• Commercial sector defaults: up 50% on July-Dec 2007, 32% on Jan-June 2008

Hire Purchase and Personal Loan Applications

Total consumer credit enquiries were down 12% on July-December 2007, although there was little change in the overall number of credit applications from Jan-June to July-Dec 2008.

Personal loan applications suffered a decline, with 15% fewer applications for personal loans in July-Dec 2008 compared with July-Dec 2007. Hire purchase applications for the same period dropped by 11%, and also 11% on Jan-June 2008.

Veda Advantage Managing Director John Roberts says, “With cuts to taxes, interest rates and petrol prices, coupled with a comparatively promising December, we were expecting to see a more encouraging January in terms of credit applications. However, consumers are clearly bracing themselves for the likelihood of greater stress on household budgets in 2009.”

Credit Card Inquiries

Applications for credit cards have remained consistent over the last 18 months, with applications for July-Dec 2008 up slightly (1%) on Jan-June 2008, and down by the same margin on July-Dec 2007.

Mr Roberts notes, “Consumers are far more likely to turn to flexible lines of credit in order to manage other debt in leaner times, and the incentives that credit card companies are able to offer make them a more attractive proposition than fixed-term credit.”

Mortgage Inquiries

The property market saw July-Dec 2008 mortgage applications fall by 20% on 2007, and by 8% on Jan-June 2008. While there is optimism that the market will recover slightly as house prices and interest rates continue to fall, January mortgage applications were at a 5 year low.

John Roberts: “It remains to be seen what impact falling house prices and cuts to mortgage rates will have on the market, but the trends we are witnessing through the bureau suggest conditions may worsen further before we see any improvement.”

Consumer Defaults

The total number of consumer defaults rose 11% compared with the first six months of the year. Interestingly, the greatest generational increase of defaulters was amongst Baby Boomers, with a 20% increase in defaults from Jan-June to July-Dec. Generation X saw an 8% increase while Generation Y, which had the biggest rise in defaults in the last report, went up 2%.

John Roberts says, “It is unusual to see such a dramatic rise in defaults amongst what is normally the most financially stable demographic. This may well be a result of Baby Boomers over-extending themselves during more economically healthy times. With payments on highly-geared mortgages, second homes and high-end goods such as boats and jet skis, they are really starting to feel the pinch.”

Commercial Defaults and Inquiries

There is cause for concern in the commercial sector, with defaults for July to December 2008 up 50% on the last 6 months of 2007. Defaults in the latter half of the year increased by 32% on January to June, an indication of the growing impact the global recession is having on New Zealand business.

Commercial credit applications were down 14%, and comparison between January 2008 and January 2009 points to an increasing trend downwards, with a 24% drop.

Veda Advantage Managing Director John Roberts says, “When you compare the statistics from our snapshots of the first and latter half of last year, the accelerating effects of the recession are there in quite stark figures – we’ve ultimately seen defaults increase by 50% over the last 18 months, while lending and borrowing in the commercial sector has slowed up sharply over the last quarter. This means that Creditors are loading earlier and not letting cash flow get out of control”

ENDS

About Veda Advantage – About Veda Advantage – www.vedaadvantage.com
Veda Advantage facilitates credit reference checks for New Zealand’s major banks and lenders, and underpins the ability of consumers to exercise choice in relation to consumer credit products. Veda Advantage holds files on around 97.5% of the individual credit-active population and 100% of the commercial credit-active population in New Zealand.

You can apply for a copy of your credit file at www.mycreditfile.co.nz or by calling 0800 692 733. A $23 express delivery service fee is payable if the file is needed urgently, or otherwise the file will be available within 10 working days.

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