D&B report credit concerns

Dunn & Bradstreet’s latest report on credit is out and it is not for the faint hearted.

One third of Australians expect to experience difficulties meeting their credit commitments over the next three months and nearly 40 per cent anticipate having to use their credit card to cover otherwise unaffordable expenses.

At the same time one in four Australians are planning to apply for a new credit product, although the greatest product demand is for non-bank credit such as mobile phone plans.

These are some of the findings from the latest Dun & Bradstreet Consumer Credit Expectations Survey, released today. The survey was conducted by Newspoll and examines peoples’ expectations for credit applications, credit usage, and spending and debt performance in the June quarter 2011.

Key findings from the survey include:

  • 27 per cent of Australians expect to apply for a new credit product (see further comments, below)
  • 23 per cent of Australians expect a higher level of debt
  • 38 per cent of people expect to use their credit card to pay for otherwise unaffordable expenses – a figure that has remained elevated since the GFC
  • 29 per cent of Australians expect to make a major purchase, while 23 percent have decided to delay making a major purchase
  • 34 per cent of Australians anticipate difficulties in meeting their credit commitments
  • 50 per cent of Australians believe a rise in interest rates will have a negative impact on their finances.

Overall the survey indicates that while Australians have a reasonably strong appetite for credit they are concerned about their capacity to effectively manage debt levels in an environment of rising interest rates. Expectations of relying on credit cards for otherwise unaffordable expenses and worries about meeting future credit commitments are the strongest indication of this concern.

According to Christine Christian, Dun & Bradstreet’s chief executive officer, the latest data points to the financial pressure many households are experiencing as a result of debt levels remaining at historic highs despite recent talk of household deleveraging. The most recent Financial Stability Review by the Reserve Bank of Australia reported that household debt-to-income levels remained above 150 per cent.

This survey fits with what I have been noticing in the broader economy. People still seem to feel confident about the overall economy, but when asked about their own personal situation the story is far less positive. I get the sense that people are being told one story by the media and the government and at this stage are still listening even though it doesn’t quite sit right with their own personal circumstances. The longer this situation continues I would suspect that people will come to terms with the fact that they are being told a beautiful lie.

“Household de-leveraging has been a regular theme in economic commentary over recent months. However, debt levels remain at historic highs and many households continue to struggle balancing their income and credit commitments’, said Ms Christian.

“This survey shows that many Australians are using credit in ways that may eventually harm them and expected interest rate rises later in the year may be the trigger that causes distress for many households.”

Credit applications
Taking a closer look at this aspect of credit provision, D&B found that while 27 per cent of Australians expect to apply for new credit the greatest demand at a product level is for mobile phones, a non-bank product. Thirteen percent expect to apply for a new mobile phone plan, while 8 per cent expect to apply for a new credit card. However, 6 per cent expect to apply for a credit limit increase on their credit card. Expectations for mortgage applications for a primary residence sit at just 4 per cent.

That last sentence is the kicker because credit issuance is THE driver of the Australian economy and housing finance is the major component. There is a big difference between micro and macro economics. At a household level paying down debt is a smart move but when every household has the same plan then the lack of new credit issuance stalls the economy which makes the whole endeavour counterproductive. I think we have already seen the beginnings of this in many parts of Australia.

At a macro level we have a government hell bent on surplus even with falling taxation revenues, a mining boom that still can’t manage to sustain a positive trade balance, and a disleveraging private sector. If these 3 things continue then Australia is in deep economic trouble.

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  1. The months since the new year at work have been the biggest months we have ever had. Seems like financiers are buying almost anything these days in terms of credit applicants, in everything other than home loans.

    Seems like since the NCCP, we have been given a crap load of extra paperwork to do and way more people are getting approved. People who, just 5 months ago, would have been declined in a second, are getting approved without even a word. I put the application up, a few hours later I get an approval back.

    I commented on this a few times before. I didn’t think that NCCP would have any affect on the business asset/car finance markets since lenders needed applicants to have serviceability already. The paperwork is ridiculously pointless and annoying, but at least we are making more money.

    Very glad I am not a mortgage broker or real estate agent right now. Our products are all fixed repayments, all short term (so you can easily say applicants should have affordability for the life of the loan) and the lenders are eating up applicants.

    Fingers crossed for stagnating home prices and not a crash!

    • Thanks Matt.

      This would fit nicely with my thoughts around motor vehicles stats and my thoughts that people have given up on housing for various reasons and are buying a car in the meantime.

      I actually know 2 people who have done exactly that. One who has given up on saving for a house because it is simply too hard for them, the other because they believe houses are going to fall in price so they can afford a car in the meantime.

      The problem for the economy however is that in terms of credit issuance a car does not equal a house.

  2. The_Mainlander

    Debt de-leveraging… bam and the debt is gone?!

    Oh yeah right sorry that will be in twenty years.

    Oh noes!

    Waking up with megga mortgages – no thanks!

  3. “people will come to terms with the fact that they are being told a beautiful lie.”

    Wonderfully written… This sentence nicely sums up how I feel when I read about the property boom and the ‘rivers of gold’ from the resources sector with full employment and good times for all.

    I am told one thing, but when I look around me and observe the the world and the numbers coming in, the reality doesn’t match the story for many sectors of the economy, at least in the circles and world I live in…

    Closer to the edge is more how I feel.