Mortgage applications increase in all states amid COVID-19, while other consumer credit demand falls

SYDNEY – 6 August, 2020 – Demand for credit cards, personal loans, buy now pay later, and auto loans dropped in the June 2020 quarter according to data from the latest Quarterly Consumer Credit Demand Index (June 2020). Mortgage applications bucked the trend largely driven by Generation Z as many in this generation reach home buying age.

Released today by Equifax, the global data, analytics and technology company and the leading provider of credit information and analysis in Australia and New Zealand, the index measures the volume of credit applications for credit cards, personal loans, buy now pay later (BNPL) and auto loans.

The largest declines came from credit cards which continue to fall out of favour. In the June 2020 quarter, the number of applications dropped by -45.4% compared to the same time last year, with all states and territories experiencing similar falls. The decline in credit cards since early 2018 is mainly due to consumers switching to alternative products like debit cards, small Fintech loans and BNPL, but the upward trend of BNPL did not continue in this quarter.

Kevin James, General Manager Advisory and Solutions, Equifax said: “The 7.3% reduction in buy now pay later applications in the June 2020 quarter wasn’t expected, but the government’s economic stimulus measures in response to COVID-19 may have lessened the need for consumers to buy on credit. There is also strong sentiment from many consumers to pay down their debts and use any stimulus to get them in better financial shape where they can”.

The sharp drop in personal loan applications for the June quarter YOY (-33.5%) can be attributed to COVID-19, government stimulus and switching to alternative types of credit like BNPL. Auto loans also fell by -13.7% YOY for the June quarter, however held up better than other forms of credit during the COVID-19 period bouncing back in the lead up to end of financial year.

Credit card applications continued their decline in the June quarter (-45.37%). All states and territories declined at a similar rate: NSW (-46.9%), WA (-46.6%), NT (-44.6%), VIC (-45.5%), QLD (-43.9%), ACT (-43.8%), TAS (-41.5%), SA (-40.7%). Decreases have risen over the last quarter.

Personal loan applications have decreased across all states and territories in the June quarter (-33.53%). The largest decline was seen in TAS (-35.2%), followed by VIC (-34.7%), NT (-34.6%), NSW (-34.5%), QLD (-34.4%), WA (-29.7%), SA (-28.8%) and the ACT (-27.1%).

Mortgage demand improved in the June quarter (+7.55%). A significant uptick can be seen when compared to this time last year as well as comparing to the March 2020 quarter.

All states and territories experienced an increase in mortgage applications, with the ACT (+18.5%), NT (+12.2%), NSW (+7.7%) and VIC (+4.7%) the clear leaders. Most of this demand was driven by young Australians, with Gen Z accounting for +19.8% of applications. Homeownership desire among millennials (Gen Y) also increased (+0.2%), compared to a decline among Gen X (-6.5%) and baby boomers (-10.8%).

 “Despite the economic uncertainty of COVID-19, homeownership remains an important goal for many young Australians, particularly in the current climate of record-low interest rates and government initiatives helping people into the property market,” James said.

The First Home Loan Deposit Scheme has been popular with young people, with around 55%¹ of the scheme’s applicants under 29 years old. Those aged 18-24 years make up 21% of this group, which is likely one of the factors behind the explosion of mortgage applications among Gen Z.