The latest lending figures show fixed-term borrowing for cars, boats and travel has jumped 38 per cent since its low point in November 2008 at the depth of the financial crisis.

Banks have captured all of the growth, boosting personal lending by 57 per cent in the year to November at the expense of non-bank institutions, whose lending dropped 13 per cent.

Personal loans up as banks ride wave
PETER MARTIN
January 13, 2010

Personal loans are making a comeback, and banks are getting the cream.

The latest lending figures show fixed-term borrowing for cars, boats and travel has jumped 38 per cent since its low point in November 2008 at the depth of the financial crisis.

Banks have captured all of the growth, boosting personal lending by 57 per cent in the year to November at the expense of non-bank institutions, whose lending dropped 13 per cent.
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Loans for new cars jumped 8 per cent, loans for boats 19 per cent, and unsecured loans for blocks of land 50 per cent.

”The improvement in economic conditions, and in particular the sustained improvement in consumer confidence, is starting to resonate,” said a CommSec economist, Savanth Sebastian.

”Job security is giving consumers more confidence to go ahead with planned purchases of big-ticket items like motor vehicles.”

The figures show a move away from borrowing to buy used cars. Loans for second-hand vehicles were down to the lowest point in the 22 years records have been kept.

Australians also seem to be shying away from credit cards. The 38 per cent growth in fixed loans has outstripped a 6 per cent growth in credit card and personal revolving credit limits.

Other figures released yesterday show mobile phone purchases accelerating, with December being the second-biggest month for sales on record.

The Australian Mobile Telecommunications Association said a near-record 9.1 million mobile phones were imported last year, more than in any year other than 2007.

The 17 million mobile phones imported over the last two years amount to one for each Australian over the age of 15.

”The data on mobile phone sales is confirmation that consumer spending is recovering,” said Mr Sebastian. ”Aussie shoppers are still cautious, largely waiting for discounting to buy goods, but that is to be expected given the shock of the financial crisis and expectations of further rate hikes.”

The Bureau of Statistics lending figures show the trend in commercial lending continuing to deteriorate despite a 4 per cent jump in November. The trend is down 8 per cent over the year.

Mortgages for housing fell 3 per cent in November and lending for renovations fell 2 per cent after mortgage rates began climbing in October.

The figures were published a day after ABS data showing a 6 per cent fall in home loans taken out in November.

Mr Sebastian said the locomotive of lending had switched from mortgages to personal loans.

”It is ironic that over the past year what supported lending finance was housing, which has now contracted largely due to the fact that we’ve had rate hikes and the expiry of the First Home Owners Boost,” he said.

”The boost brought forward purchases by six months or so and we’re seeing the natural lull now.”

The Reserve Bank board will meet in three weeks to decide whether to increase rates again for what would be the forth consecutive time.

A further rise of 0.25 percentage points would add another $47 a month to the cost of servicing a $300,000 mortgage, on top of the $135 to $185 added since October.

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In 2001 the average loan rate was 12.5 per cent, but banks only made a 6.5 per cent profit as the base rate was 6 per cent. Thanks to the current low rate, bank profit margins are 11.9 per cent. The latest personal loan figures were collated by finance experts at the moneyfacts.co.uk website. Spokesman Michelle Slade said: ‘There is no security that a personal loan debt will be repaid. ‘In such a risk-averse market, lenders are only offering loans to the most creditworthy applicants and then at a premium.

‘When people are struggling, unsecured lending is one of the first debts they stop repaying.’ The best loan deal is with Alliance & Leicester, which is charging 8.9 per cent on a threeyear £5,000 loan. This works out at £157.97 a month. Andrew Hagger of the Moneynet.co.uk said one reason that headline interest rates are up is because finance giants have been prevented from imposing rip-off charges on the Payment Protection Insurance (PPI).

The banks have made billions of pounds for years by charging sky-high premiums on the insurance sold alongside personal loans. There is evidence many people were mis-sold the insurance, which is supposed to provide payment to cover essential bills in the event of sickness or unemployment.

The Competition Commission has ordered strict controls on the cost of the insurance and hard pressure sales tactics. However, it appears the industry has responded by simply putting up the price of the loans.

Mr Hagger said: ‘With unemployment at a near 13 year high of almost 2.5 million, and many families struggling financially, it is no surprise that the level of competition in the unsecured loan market has subsided.

‘Not only is the risk of defaults higher in the current economic climate, the highly profitable Payment Protection Insurance cash cow is no longer there to subsidise lower loan rates.

‘With banks and building societies still adopting a far more cautious stance even when it comes to mortgage lending, even with your property as collateral, it’s no surprise that the appetite for unsecured lending has pretty much dried up.’

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