By Jill Fraser for Lending Central

Veda Advantage’s quarterly Consumer Credit Demand Index, released last week, reveal that mortgage applications increased by 32% in the July to September quarter of 2009 compared with the same period last year, reflecting the highest quarterly increase in mortgage applications in the past five years of Veda Advantage records.

But speaking exclusively to Lending Central Russell Evans, Veda Advantage General Manager Market and Product Development cautions against getting too excited about this spike.

Flash numbers for October show a drop in the number of residential mortgage inquiries.

Year on year the September quarter showed a 32% growth following a June quarter of 28%. But Evans says that a preview of October numbers shows only a 15% growth.

He surmises that the reason for the dropping off of applications is the softening of some components of the First Home Owner’s Grant, the interest rate rise and talk of further rises.

“But from what we’re hearing in the marketplace the leading indicators are of a strong summer sales period in the $600,000-plus property category. There seems to be a lot of activity in the high end of the marketplace and that goes towards the older demographic,” says Evans revealing that scant November numbers suggest that the Over 30 group are still very active.

Veda Advantage’s quarterly Consumer Credit Demand Index revealed personal credit demand (credit card and personal loan enquires) fell by 14% in the July to September quarter of 2009 compared with the same quarter in 2008.

In the March quarter the demand for unsecured credit - personal loans and credit cards - was down 26%. In the June quarter it was down 20%. The September quarter was down 14% and October numbers suggest that this is going to drop down to 10% or 12%.

“What we’re seeing is that whilst consumers are adopting a conservative approach about taking on new credit - in the form of personal loans and credit cards - people are re-entering that space; in particular personal loans for motor vehicles,” says Evans.

“But demand for credit cards is nowhere near where it was in 2006/2007 when there was a plethora of very attractive offers.”

Evans’ concern is the 10% to 12% pocket of consumers who are currently over indebted and looking for more credit.

Veda Advantage’s Australian Debt Study Report conducted by Galaxy Research and released last month indicates:

• More than one in ten (12%) of Australians have missed a required minimum payment in the past three months, with many missing two or more essential household payments. Of the people likely to apply for more credit one in five (18%) have missed a bill payment in the last three months.
• Of those Australians with a mortgage, 13% were late paying a household bill in the past three months. One in three respondents is concerned interest or mortgage rates will impact on their ability to repay debts during the next twelve months.
• Mortgage holders aged between 25 - 49 years are three times more likely to miss a payment than those over 50 years. Mortgage holders were most likely to miss a telephone or internet bill, followed by a mobile phone bill, credit card, utilities and personal loan repayment.

Evans says the implementation of responsible lending laws are important because they will put onus on the banks to establish capacity to pay “but without the required change in credit reporting laws it’s going to make that task really tough for banks”.

“The Australian Government has announced its intention to introduce comprehensive credit laws and a desire to link this to the launch of the responsible lending laws in January 2011. Our concern is that this timeline could blow out and if that happens the ability of banks and other credit providers to assess capacity to pay, especially in the 10% who are currently struggling with debt, will be very challenging and that could mean borrowers who shouldn’t getting more credit getting further into the debt cycle,” says Evans.

Maintaining that while the Federal Government is to be congratulated for implementing new responsible lending laws Evans says that credit providers need to be given the tools they need now.

“A simple change to the credit reporting laws will allow credit providers to check a borrower’s current credit commitments and repayment history before additional credit is granted. This would protect families from taking on more debt at a time when they need assistance to help them out of debt.

“The Government’s responsible lending legislation is a first step in the right direction to help these Australians. However it won’t be enough. Without access to more transparent information, lenders will struggle to identify families and individuals who are in financial difficulty.

“The Government’s current timetable means this comprehensive credit reporting may not pass for 18 - 24 months - too late to help protect these vulnerable Australian families.

“Australia needs to adopt a comprehensive reporting system.  There is a window of opportunity to introduce this change, however this requires swift action,” Mr Evans said.