But signs of improvement evident, credit bureau says
While enquiry volumes for other major credit types increased over the year to February, mortgage enquiries declined, Experian data shows.
But there are recent signs of improvement, mortgage enquiry volumes having picked up from December, the credit bureau says.
Experian credit data showed that in the year to February 2023, mortgage enquiry volumes decreased by 14%.
This was contrary to other credit types over the same period, with enquiry volumes for buy now pay later (BNPL), credit cards and personal loans increasing by 28%, 31% and 26% respectively. Over the two years from February 2021, the rise in the level of enquiry across these credit types was even more pronounced.
Experian said that its analysis showed that Australians were turning to short-term lending options to help them to deal with the rising cost of living amid inflationary and other pressures.
Experian general manager of credit services Tristan Taylor (pictured above) said that the lending landscape had changed “significantly” over the last two years, driven by the evolving needs of Australians as the country tackled higher inflation and other economic forces.
“Many Australians with mortgages and loans are likely to be feeling the economic pinch, so lenders need to adapt,” Taylor said.
Given the outlook, for credit providers committed to proactively monitoring their customers’ financial health, automation, data and analytics and decisioning would be “key”, he said.
“This not only affects their loan portfolio, but proactive assessment shows genuine care for customers, allowing lenders to identify and assist those who may be financially vulnerable and at risk of facing hardship,” Taylor said.
Level of mortgage enquiries rises from December
In the three months to February 2023, mortgage enquiry volumes increased by 23%, and in February compared to January, mortgage enquiries jumped by 29%, Experian said.
In response to the factors driving the recent spike in mortgage enquiries, Taylor told MPA that seasonality was a likely factor, noting that lower enquiry volumes were typical in January.
“Given the concurrent interest rate rises, cost of living increase and a large contingent of consumers with their fixed rate mortgages coming to an end, it’s not surprising people are driven to shop around for a better deal, where previously they may have stayed loyal to their existing institution,” Taylor said.
More recent data provided by ABS showed that after reaching a record high $21.3bn in March, the value of external refinancing fell 9.2% in April, to $19.3bn, while new loan commitments for housing were down 2.9% to $23.3bn.
Missed repayments are rising across major credit types
In line with recent S&P Global data showing that prime and non-conforming RMBS loan arrears had started to rise, Taylor said that Experian has seen indications that missed repayments were increasing across different credit types.
“Preliminary analysis of Experian data shows that missed repayments have increased across major forms of credit in the last six months,” he said.
BNPL enquiries reaches new high in February
Enquiry volumes for BNPL were up 55% in February 2023 compared to January, Experian data showed. February enquiry volumes were the “highest observed” since November 2021, which captured pre-Christmas spending, the credit bureau said.
Although BNPL services are to be regulated under the Credit Act, Taylor said that it was too soon to tell whether this had impacted consumer or BNPL provider behaviour.
Commenting on BNPL enquiries being captured on consumer credit reports, which Borro founder and mortgage broker Cara Giovinazzo, Taylor said in November could lower credit scores and reduce borrowing capacity, Taylor said that not all BNPL lenders currently report enquiries to credit bureaus.
“This is one area where we expect to see changes once the new regulation is put in place,” Taylor said.
For BNPL lenders that do report enquiries to credit bureaus, those enquiries will be reflected on credit reports in the same way as any other application for credit, and will also be factored into credit scores, he said.
“Experian welcomes the Australian government’s decision to regulate the BNPL sector – having checks and balances in place for potentially vulnerable consumers is always a good thing,” Taylor said.
