Data from credit rating agency Equifax showed that the overall demand for credit slowed down during the second quarter of the year compared to last year.

It appears the rising interest rates are taking their most significant toll on mortgage and auto loan applications.

Overall, secured consumer credit applications went down 3.3%, with car loan demand going down 5.4% while mortgage applications hitting a 2.8% decline.

Equifax general manager for advisory and solutions Kevin James said the impacts of the rate hike trend that started in May 2022 are becoming more evident among mortgage holders and car loan borrowers.

“We are seeing accelerated growth in mortgages in early arrears, with a 33% uptick in mortgage accounts that are 30-89 days past due, compared to 22% last quarter,” he said.

Meanwhile, auto loan arrears have hit a five-year high over the quarter.

“The significant increase in auto loan arrears suggests consumers are struggling to repay auto loans as they grapple with the high cost of living — a trend that we are also seeing in international markets including the US and Canada,” Mr James said.

The lagging demand for financing was also apparent among unsecured consumer credit applications, which comprise credit cards, personal loans, and buy-now-pay-later (BNPL).

Overall, demand for such credit declined 8.3%, driven mostly by the easing demand for BNPL, which went down 26.3% over the quarter.

Meanwhile, personal loan applications fell 5.9% during the same period.

Interestingly, credit card applications went up over the quarter, growing 5.9% higher than last year.

Mr James said the overall slowdown in unsecured credit indicates that consumers are reducing their spending in response to mounting economic pressures.

“While demand for personal loans declined year-on-year, the average limit per account, and the average credit score of applicants, has increased. This could indicate that consumers who previously weren’t feeling financial strain have begun to consolidate their debts, so they can better manage their credit payments,” he said.

A separate study from competing credit rating agency Illion showed that the credit default risk of Australian consumers has risen over 8% in the year to March 2023.

The report also highlighted various indicators of deteriorating repayment behavior among Australian borrowers, including increased mortgage and living costs.