Demand for consumer credit continues to decline. Photo: 123RF
Demand for consumer credit is continuing to decline with households getting on top of their budgets and many only going into debt for essentials.
The latest report by credit bureau Centrix shows demand is down 2 percent compared to last year, while arrears levels are up 3.5 percent year on year.
But Centrix chief executive Keith McLaughlin said in the last four to five months there had been a downward trend in arrears, showing people were paying off debt.
With the economy still weak, people were cautious about spending, he said.
"Renovations, cars, boats, the luxury items, the credit demand in those areas has really fallen away over the last 12 months. That is because households are not spending money unless they feel as so they have to and even those that can't afford to spend that money are putting off the decision or delaying the decision to go ahead and do that."
Arrears were up for essential products, including power, home loans and rent, McLaughlin said.
The reduction in discretionary spending had badly hurt businesses with credit defaults up by 16 percent across the board, he said.
"Arrears in the business sector, particularly the small- and medium-sized businesses ... are at a very high peak at the moment. Again that's because businesses have been facing increased costs, but the revenue has fallen simply because people aren't spending the money."
Looking ahead at the summer period, people were expected to spend more on discretionary items, particularly as interest rates and inflation were falling, McLaughlin said.
"We traditionally find that is where spending does increase. Having said that, we also find that arrears also lift in the late January - February period as things tighten up.
"But we would expect to see a little bit more spending from those who can afford to spend and then slowly as more money comes into the household budget through the rollover of mortgages and reduction in rents as the pressure comes off landlords. As that starts to flow through, we'd expect to see a little bit more money in most household budgets."