Consumers favouring personal loans and credit cards over mortgages

Data reflects stronger retail market, softer mortgage market over holiday season.

Personal loan applications up

A spike in personal loan applications over the festive period last month shows that Australians are spending on retail and other items as opposed to the overpriced housing market. 

The new figures released by data and credit information analyst Veda show that in the December 2015 quarter:

  • personal loan applications grew by 11.9%, compared to a dip of –5.1% for the same period the previous year
  • credit card applications rose by 7.5%, slightly more than the growth seen for the same quarter in 2014
  • mortgage applications rose by 2.9%, fairly consistent with the level of growth for the same quarter in 2014.

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Consumer credit growth reflects retail spending

The growth in personal loans can be attributed to several factors says Angus Luffman, Veda's general manager of consumer risk.

"Despite the challenges posed by the downturn in mining-related construction, retail spending has remained robust due to low interest rate settings, a strengthening jobs market and rising consumer sentiment late last year," he says.

Luffman says the stronger growth in personal loan applications is consistent with strong growth in household goods and improved growth in car sales that were seen late last year.

Mortgage applications cool along with housing market

Mortgage applications are typically down during the holiday period compared with the rest of the year. For the December 2015 quarter, there was growth of 2.9% compared with 2.4% for the December 2014 quarter. New South Wales saw the sharpest decline in mortgage application growth compared to other states and territories, which could suggest a shift in home buyer demand.

"The fall in mortgage applications suggest cooling conditions in the housing market heading into 2016, especially in light of the Australian Prudential Regulation Authority's changes to investment lending," says Luffman.

The report suggests the decrease in mortgage demand is consistent with falling auction clearance rates and a drop in house prices in November and December 2015.

Australians clock up the credit

While the Veda figures show that demand for new credit cards continues to rise, ASIC's credit card debt clock reveals just how much Australians already owe on plastic. At time of writing, the average debt per credit card holder is $4,374.30, costing more than $700 per annum in interest on a card with an interest rate of 15 to 20%. Overall Australia's credit card debt is more than $32 billion, and growing.