The rate of growth in mortgage borrowing continues to slow - but consumer borrowing is hitting growth levels last seen 12 years ago

By David Hargreaves

Borrowing figures are continuing to portray an intriguingly mixed picture - with mortgage growth continuing to slow but consumer borrowing surging.

The latest Reserve Bank figures monitoring sector credit show last month the annual rate of growth in mortgage borrowing dropped to 5.9%, which is the slowest rate in about two and a half years, and compares with an annual growth rate in mortgage borrowing of some 9.3% only a year ago.

In marked contrast, however, personal consumer borrowing is continuing to grow now quite rapidly. 

In December the total amount owing for consumer borrowing increased by some $336 million - that's over 2% in just a month. The $336 million increase in the total for the month was the biggest monthly rise in about 14 years.

This big surge saw the annual growth rate for consumer borrowing lift to 8.3%, which is a level last seen in October 2005.

In the latest month about two thirds of the increase in consumer borrowing was supplied by the banks, while non-bank lenders accounted for the other third.

The extra $134 million borrowed from the non-bank lenders actually represented a 2.7% increase in the amount outstanding to these lenders, to a total of $5.141 billion.

On the mortgage figures, while the annual rate of growth is continuing to slow, the increase in the total borrowed in the latest month - just over $1.2 billion - is the biggest increase for a few months and bears out some anecdotal suggestions of a loosening up in lending a little. 

With the Reserve Bank's LVR restrictions having been eased from the start of this month, the monthly totals will be worth watching to see if they do start to climb more strongly again, and if that annual growth rate continues to decline.

Aside from the LVR restrictions, banks had been seen as 'rationing' credit somewhat in the past year in reaction to a struggle to attract sufficient new deposit funds. This funding pressure has now eased somewhat with deposits flowing more readily again.

Elsewhere in the latest borrowing figures, the annual growth rate in business borrowing declined sharply from a 13-month high of 7.4% to 5.5% in the past month. 

Looking back over several years, it's not unusual to see business borrowing slacken over the Christmas/end of year period - but given the tepid response business opinion surveys have given to the new coalition Government - these figures will be worth watching to see if some sort of a slower business borrowing trend emerges. If it did of course, this would suggest businesses less confident about future expansion.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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32 Comments

Imagine if borrowing for consumer spending wasn't growing. The implications for the economy would be negative, The media will tell you that consumer debt is "bad debt" and mortgage debt is "good debt." However, that is short-sighted. What if consumers were living within their means and spending on what they could afford (without debt)? The retailers of goods and services would suffer. And if the consumer economy were negatively impacted, would impact would that have on mortgage debt?

Hmm, this issue has been discussed: "What if everyone became frugal?"
We could still prosper - look at the Germans, high productivity, high incomes, low wastage, less excessive consumer debt, etc
https://www.mrmoneymustache.com/2012/04/09/what-if-everyone-became-frugal/
Spending on debt cannot lead to prosperity surely?

Thanks for the link. And yes, it's an interesting question. Germany and Japan are massive consumer economies and reliant on consumer spending as us in the Anglosphere. Debt-fueled spending can lead to prosperity for sure, but what I am suggesting is somewhat different. Unlike govts, household budgets are relatively fixed (without greater consumer debt). If the "price of shelter" (mortgage repayments, rent, etc) comprises a greater proportion of a h'hold budget, what does that spell for other spending in a high-cost economy like NZ or Australia? In the case of Japan, they have transitioned to a relatively low cost economy mainly through innovation and through economies of scale, while the cost of shelter has been decreasing for years. The scenario for NZ and Australia seems to be completely different. Our economic profile is based on both high shelter costs and high consumer price costs.

consumer debt is "bad debt" and mortgage debt is "good debt

Generally.
However jumbo mortgages needing over 40% of income to service - good debt?
Or credit card balances from balance transfers on 0% interest - bad debt?

40% if both work! Assumes no procreative aspirations presumably.

I'd also add that if the jumbo mortgage is on a rental that gives sub par yield against the risk and has capital gain prospects at or below inflation, then is it really good debt?

Credit card balances from balance transfers on 0% interest is one of the sneakiest moves from the banks. Why? If you transfer say $10'000 at 0%, then spend say $2'500/month on that card and you also repay the $2'500 you would expect to pay nil penalties. Wrong, the bank will charge you interest of about 20% on the $2'500 because they deem that the repayment goes towards the older transfered debt. The next month you again charge $2'500 on the card and repay the $2'500, now the bank charges you 20% o $5'000, after 4 months you have repaid the transferred $10'000 in full, and you will pay 20% penalties on the $10'000 until such date as you finally repay it in full.
Did you know that?

I think most users of bts realise that you need to quarantine that card purely to hold the bt amount.
Then use a debit card or a separate cc for transactional use.
Anyway, the idea is that you can actually nullify your interest on consumer debt if you want to use that option, and is unsecured so does not add risk on any property. Therefore may not be considered bad debt, and is cheaper than mortgage debt.

I've been caught on this before, so I looked up what the banks do and actually not every bank does that.

ANZ does .... (https://www.anz.co.nz/personal/credit-cards/transfer-balance/) -- payments on BT first OUCH
Westpac does (https://www.westpac.co.nz/credit-cards/balance-transfer/) -- payments on BT first OUCH
ASB does not (https://www.asb.co.nz/credit-cards/balance-transfer.html) -- payments go to purchase first
BNZ does not (https://www.bnz.co.nz/personal-banking/credit-cards/transfer-your-credit...) -- payments go to highest interest rate first

Interesting, thanks MisterB

Add Co-operative Bank to the list that pays off the highest interest rate balances first. Remember with ALL credit cards unless you repay the final balance owing on your card IN FULL by due date all purchases will be charged interest from the date of the transaction. So unless you repay your BT balance any use will generate interest so always choose low rate card if you can't or don't repay in full.

If using BT then you are best to dedicate the receiving card to holding the bt balance alone, and don’t use the card until repaid or you rollover the balance again.

Consumer spending comprises 60%+ of our GDP, so consumer debt arguably has a positive effect. If everyone ate only porridge and cut Sky TV, the economy would be toast.

Your comment that "mortgage figures...growth...just over $1.2 billion" does not seem to reconcile with the actual S31 (https://www.rbnz.govt.nz/statistics/s31-banks-assets-loans-by-purpose) which shows $1,131m, >20% lower that Dec 2016 growth, much like November was.

How does this imply that rate of growth is turning back up? December is always high, it's December.

I'd be super worried about the Consumer Debt bubble -- this is canary in the coal mine stuff. This is largely high interest unsecured debt and will be the first to push households to the brink. Of course, a good chunk of it will be credit card usage in the lead up to christmas, and if paid off, will not attract interest.

Another concern is the S41 figures which showed the Household funding growth to be the smallest December in some time. That with increased consumer debt = not ideal signs.

Thanks for the comment. The article above quotes from the C5 Sector credit table, which is linked to in the article and again here. This includes all lending, not just bank lending. 

Ah,thanks for the share. I've never noticed the C5.

You threw me with your comments around banks loosening criteria, but it's clear bank growth is, seasonally adjusted, still declining reasonably sharply. The C30 showed this also.

Wonder if we should be collectively concerned in increases in non bank lending for housing, as it's no doubt designed to get around legislative restrictions. Although it's small, it's increased from 0.75% of total to 0.89%, not insignificant.

#statsjunky

or are we seeing changes in attitude through teh demographic - at nearly 50 - i understood that i needed to save for a few years - then would have to repay a mortgage for 25 in order to get what i wanted ( or thought i wanted) a house of my own paid off so i could have a better retirement and provide for my family ( 3 girls 20, 24 and 28) This was common thinking that a large number of my friends all shared as life dream/purpose

but anecdotally i hear from my daughters and their friends - in very similar positions to what i was - its too hard to save, no way am i going to be paying for the next 25 years - much rather live hard now - have all the toys , holidays abroad latest i phones- boat / flash cars etc

Perhaps we are just not understanding that the issue of property ownership is a lot more than can we afford it - but actually a cultural change where a younger generation want very different things in life than older generations -

kpnuts, I'd give you 10 thumbs up if I could

kpnuts, I'd give you 10 thumbs up if I could

thanks -- i'll settle for the double up :) Its not a critique of the young generation - of my three only one is thinking save for a house and budget for the future - one is completely living paycheck to paycheck - another ran up 30K of easy debt with nothing but a crappy car, huge tv and about five new phones to show for it. Its a mindset that i and many of my age group find difficult to understand - but then i seem to recall being young and thinking how sad that people worked till they were 65 retired and died a couple of years later - swearing i would save get my own place and retire at 55!

6 more years of sacrifice - overpaying all teh extra income - and i will be very very close maybe even there- and then hopefully i get to enjoy that sacrifice for a bit longer than one or two years!

Yep. life is a fine balance between living from paycheck to paycheck and racking up too much debt and working hard your whole life and living thrifty only to realise at 65 that your best years are behind you

And then you die soon after retiring, having put off your grand plans till then.

Agree in part.

But when it's fundamentally unaffordable as a percentage of gross pay (let alone in a consumer driven society and technology 'requirements'), when tertiary education is expected and saddles with more debt, it's hard to just say "oh, you need to save harder".

For example, even if someone in Auckland who earned $50k saved 1/3 of their money (who knows how), after 10 years, including Kiwisaver and returns, would maybe have $180k. That's only just a 20% deposit on today's median price.

yes its tough -- but not as tough as 10% deposit and even 10% interest rates - and not many people get their first home at median price - still plenty of 500-600k starters - flats / units 2/bed 3 bed in the sticks - i think its very challenging yes -- but i recall the once a MONTH chinese takeaway and dvd treat that was being married one income 3 kids - and as much overtime as i could get - my kids eat out several times in a week!

Buying a house was always hard for average working people - ask any 45+ year old and i reckon 90%+ will tell you of the sacrifices - skipping meals 2nd hand furniture hand me down clothes blah blah blah when i was a lad stories -- but the reality is they were true!

I dont recall same level of social pressure to conform with social media - the pressure to have all the latest toys and gadgets and our decaying oceans, waterways - terrorism to the extent it is global -

Each generation faces its challenges - and they will continue to change faster than the previous generation can understand and keep up - we just need to work out how not to judge each other by our own values and beliefs!

yes its tough -- but not as tough as 10% deposit and even 10% interest rates - and not many people get their first home at median price - still plenty of 500-600k starters - flats / units 2/bed 3 bed in the sticks - i think its very challenging yes -- but i recall the once a MONTH chinese takeaway and dvd treat that was being married one income 3 kids - and as much overtime as i could get - my kids eat out several times in a week!

Nice bit of Presbytarian socialization there. If NZ was becoming "richer", buying a house and the cost of living would become cheaper, not "that's how it is and we all suffer together because that's the way it is."

kpnuts, I'm rapidly becoming a fan of yours, I totally agree with you.
I bought my first house with...0% own money, I just looked until I found a vendor willing to leave 20% in, when interest rates were over 10% and it was not a "median" house, I understood I had to start somewhere at the bottom, then I got a flatmate in to help pay the loan. Now 25 years later I have a mortgage free house in Ponsonby and people say: "you're so lucky"

Doesn't change the plain old mathematical facts that housing today is a completely different equation for young people today.

In the example I posted yesterday, a fellow who lives in a beachfront mansion in a popular NZ resort town told me "We were very lucky in being blessed with good timing. We were able to buy land and houses much cheaper, and they increased in value so much. Young people today are facing a much worse situation."

As with many, his wealth came from being able to buy in cheap and have values soar subsequently, thus being able to cash out and enjoy.

Other friends of mine got their first mortgage on the basis of their combined student allowances - much more generous in those days, and coupled with free tertiary education.

People always work hard and make sacrifices, and the savings rate among the young is higher than that of previous generations, putting lie to the spendthrift argument.

At the end of the day the maths is still much worse for young Kiwis today.

Median Income to Median House Price multiples are so much more higher these days, as a result the initial upfront cost (deposit) is also much higher in relation to wages.

Yes Interest rates were higher, but this includes deposit rates over 10% up until the 1990's, so saving for that 10% deposit on a house 3 - 4 times the average salary was much quicker.

Part of that is how much harder it is to save for that initial deposit. For a reasonable deposit in Auckland you need to save a full years household income, while still paying rent and other living costs. So realistically thats 3-4 years of being a Johnny no-mates and having a rather shit lifestyle, then you get to hang half a million of debt over your head. The only thing that has got better in that respect is kiwisaver, if they have been making 3% contribution with govt and employer contribution and qualify for the the homestart(?) grant it helps a lot with the deposit.

Extremely easy for many young to get on the property ladder and far easier than 30 years or so ago.
Parents can use the unused equity in their own homes as the deposit for their children which is so easy to do.
Also with KiwiSaver and other grants it is still extremely possible to buy that first home.
No it may not be your dream home but buying under market value several times in your lifetime and you will be debt free well before you are 50.
Of course buying positively geared rental property will put you in a far better financial position as well.

I do not consider it easier today to purchase a home, declining home ownership attests. If the median wage (now the household income) had stayed at levels found 30 years ago against median house prices... Perhaps we would not have wasted all this money on houses that could have gone to more productive uses.
Successive governments and landowners have played a merry tune whilst leading this charade. But it will be the young and the poor that will be left to pick up the tab.

Sorry but you are wrong.
It is just that many people are not advised on how they can help there kids out or they just aren’t interested in helping their kids out!!!!