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Centrix questions if we are facing the next great credit crunch, as borrowers face more hoops to jump through

Personal Finance / news
Centrix questions if we are facing the next great credit crunch, as borrowers face more hoops to jump through
Obstacle course
Image: The U.S. Army. Licence: CC BY 2.0

A rocky road is stretching out in front of borrowers in 2022, with the latest inflation numbers expected to put more pressure on interest rates, says credit bureau Centrix.

Banks have become increasingly conservative with their lending by imposing debt-to-income ratios on home loans, tightened loan-to-value ratio (LVR) requirements also on home loans, and changes to the Credit Contracts and Consumer Finance Act (CCCFA) that took effect in December.

Alongside recent interest rate increases, these factors contributed to weaker consumer credit demand figures for January, which fell 14% year-on-year.

"The increased cost of borrowing and difficulty accessing finance means Kiwi businesses and consumers are dealing with the most significant change to the face of lending we’ve seen for many years," says Keith McLaughlin, Centrix Managing Director.

The reduced credit demand was across various lending types including mortgages, personal loans, credit cards and buy-now-pay-later (BNPL).

By contrast, the demand for vehicle finance remained strong, peaking in December and remaining above-average in January, in a holiday period high that was greater than any other time during 2021.

The Omicron threat is also bedevilling business and consumer confidence and the correlation with decreased credit confidence is part of an expected pattern.

Centrix data shows 27% of mortgage applications were converted to home loans in December, a steep drop from the 39% conversion in October 2021.

Home loan applications were still flying in during January, with the highest level of new applications since June 2021 despite the new lending rules. 

Centrix pointed to brokers sending more applications to credit providers than previously, because of CCCFA changes, as possible causes for the high vehicle finance demand and the healthy level of home loan applications.

Low consumer arrears have been reported and financial hardship is at a two year low. However Centrix expects these indicators to increase in line with seasonal trends as the dust settles on Christmas spending and consumer cash flows tighten.

For business, year-on-year credit demand is up 9% on the same period last year. However, the average score for new credit applications hit its lowest average since June 2021.

Credit demand in the construction sector remained buoyant but credit ratings have deteriorated, as have those of small and medium-sized enterprises (SME's), Centrix says.

Despite the high demand of peak construction season, labour and supply chain shortages have thrown a spanner in the works, as they have in the tourism sector.

Retail spending recovered post lockdown but is also suffering the ongoing hangover of supply chain issues causing stock delay and price pressure.

Source: Centrix January Outlook

Source: Centrix January Outlook

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8 Comments

"The increased cost of borrowing and difficulty accessing finance means Kiwi businesses and consumers are dealing with the most significant change to the face of lending we’ve seen for many years," says Keith McLaughlin, Centrix Managing Director."

"For business, year-on-year credit demand is up 9% on the same period last year. However, the average score for new credit applications hit its lowest average since June 2021."

"Credit demand in the construction sector remained buoyant but credit ratings have deteriorated, as have those of small and medium-sized enterprises (SME's), Centrix says."

Prepare for a government induced major recession.

And yes; it's wasn't because of the pandemic, they are solely responsible.

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They and the Reserve Bank should never have given the handout lolly scramble to the property market. Now the hangover of the free money sugar rush...

Too much welfare for property.

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"should" "shouldn't have".  What matters is, what IS, not what one subjectively thinks should or shouldn't be.

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‘Nothing off the table’ as Government looks to support renters (1news.co.nz)

 

Nothing to see here.....But the Problem was obvious.........They stuffed up the issue........now the issue is how do they fix a Major Problem, "They" created.

Stupidity comes in very large packages.  

This just about SUMS up the Rental Mental disparity with our over blown Houses.

Do have a good day. Do have a Great Life. The Sun shines so blindly, they cannot see the obvious.

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Is it credit crunch or just trying to come to normal sense. Banks have been giving mortgages away like hot pan cakes to a fat kid who is always hungry. 

We kiwis are no better than a fat kid having pan cakes without worrying about how big the tummy is growing. When this kids grows up after a few years, would need vigorous exercise to shed all that fat.

We need to control the feed right now, so the workout is less in the future. 

 

So no it's not credit crunch, it's just how normality should be. This present government with their OTT policies sent the normality out of the window for last couple of years. 

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We need to control the feed right now, so the workout is less in the future.

 

The kid is already morbidly obese 

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It's worth listening to RNZ"s interview with Centtix from Nine2Noon today. One major takeaway for me was that SME lending is way down, and that such lending secured over personal assets such as home, is not recorded as such.  So regulators may well be flying blind as to effects of the C3FA on the 500k or so SME's.

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