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

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. 

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Hardly any surprise. Flat to zero income growth in a economy that relies on high cost structures and high consumer good / services price margins.

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.

If that's true, it mean that the sheeple have been well and truly hypnotized. And I don't think you can blame the Hoy Fongs and Newlands for being unscrupulous confidence tricksters if this is the case.

More Debt, that's the answer!

The owners of stocks, bonds, debt instruments and real estate will suffer a collective loss of $250 trillion when these bubbles pop--an event that history tells us is inevitable.
The status quo does an excellent job assuring us that these $500 trillion bubbles will never pop-- never, ever, ever; they will continue expanding until the end of time because central banks are the greatest power in the Universe and they will never ever let these markets decline.
Meanwhile, history is conclusive: ultimate financial powers in the Universe are 0 for 100 in terms of staving off collapses of asset bubbles, especially asset bubbles based on the infinite expansion of credit.

Yep. There will at some point be copious blood and guts on the floor as FHBers lose their homes. Of course that will be preceded by the global financial systems melt down (aka 1929), leading to job losses and the inability then to pay the mortgage, one very nasty, un-recoverable flat spin. The Q is will it happen? well every other case of tulip mania has, but oh no this time its different.

uh huh......

Even with bitcoin the question is when. It could feasibly keep going for a while. Those abusing the system with the most to profit from it might want to keep the party going as long as they can, (or as long as they can keep extracting profit from other people). For housing it meant we had to import new buyers while the NZ ones were thin on the ground and that in itself can offer a long extension to delay a drop. However this extension only makes NZ and NZders less resilient and at a huge disadvantage. However unlike Bitcoin (which builds on a modern trend and could be potentially infinite, potentially, but not), housing has been the trusted form of investment for generations by now but there in a lot of competition in participation, and it will mean people are less likely to move away from buying properties. Putting NZ more at risk. Even with a little limitation on foreign buying and residents there is still a large amount coming in, and we will still have widespread business access to purchase residential homes which can always be a way in for anyone under the sun. The party has had a few kegs delivered, there's an open door with people coming in, and those there already are not drunk yet. Yes those making the profit are intentionally lobbying for more kegs and the open door but there you have it. Unfortunately the party should stop before a balcony collapses under the weight and people get seriously hurt. Would not necessarily trust NZ people to act in NZs best interests. These speculative jumps should end, but how long and how many people will be drawn into higher risk first. I suspect there will need to be another international change to set it all off before expecting a NZ change to have the snowball effect. NZ govt will at best only be able to modify the edges, (perhaps more ideal in effecting a slow decline, increase in the affordable market or delay the trend). They cannot act retroactively and that means that any action from this point on will be limited by how bad it is already. Which unfortunately means while it looks like a bubble, and acts like a bubble it may not pop when it should and much like Bitcoin while it is increasingly looking like it should, larger players still want to herd more people into the bubble. It is not hard when offering a necessity like secure housing. I think if they had to work harder to bring people in it would not be such a dick move.