The rate of growth in mortgage borrowing is continuing to slow markedly - but consumer borrowing growth has hit a 12-year high

By David Hargreaves

Talk about mixed messages. We are seemingly putting money on the house at a slower rate, but whacking it on the card and taking up personal loans at a faster rate.

The latest Reserve Bank figures monitoring sector credit show last month the annual rate of growth in mortgage borrowing dropped to 6.4%, which is the slowest rate in over two years.

However, set against that, the growth in consumer credit accelerated to an annual rate of 7.7%, which is the highest in 12 years.

The two sets of figures are certainly not comparing apples with apples in that the mortgage total outstanding as at the end of October was some $241.528 billion, while the amount on consumer credit was just $15.912 billion.

The latter figure, however, has increased by well over $1 billion in the last 12 months - giving the highest rate of annual growth since late 2005.

The amount outstanding to banks on mortgages and consumer credit went past the $250 billion mark for the first time during the month.

While the recent housing boom had generally seen more constrained consumer spending than previous housing booms - notably the mid-2000s one - the latest soaring rise in consumer credit may suggest that recently the restraints have been coming off. It's possible also that some people are using consumer credit to help get into housing in the face of the RBNZ's LVR restrictions.

The RBNZ of course on Wednesday signalled that the LVR restrictions are to be relaxed from January 1 onwards.

One thing the RBNZ might likely look closely at is whether there is any specific increase in non-bank lending. That would potentially indicate more people looking to 'get around' lending restrictions.

The latest figures suggest that is happening a little - although from a low base. In fact though the amount borrowed from the banks for consumer credit has been increasing at a faster rate.

The amount of consumer credit outstanding to the non-bank lenders was $4.877 billion at the end of October, up from $4.826 billion. The $51 million gain in the past month would on an annualised basis equate to an increase of over 12.5%.

The actual annual increase in the amount outstanding to the non-bank lenders for consumer credit was $400 million, giving growth in the past 12 months of about 8.9%.

Consumer credit advanced by the banks was $11.035 billion as at October, up from $10.888 billion in September - giving an annualised rate of growth over the past month of in excess of 16%.

The actual annual growth was over $700 million, or 7.1% - which is slower than the rate of growth experienced by the non-bank sector. 

Elsewhere among the latest figures, business borrowing was again strong, increasing by over $2 billion during the month to a new record high total of $108.365 billion, with the annual growth rate being 5.9% up from 5.5% the previous month.

Agricultural borrowing was down a touch at just under $60.6 billion, while the annual rate in growth also eased to 2.5% from 2.6% in the previous month.