Fear of rising rates fuels debt aversion

RISING interest rates are making consumers more worried about big financial commitments, with new borrowing falling.

Spending on home renovations and blocks of land fall as people hesistate to borrow money / File

RISING interest rates are making consumers more worried about big financial commitments, with new borrowing for home renovations, motor vehicles and blocks of land falling in November.

Although the rise in the stock market is attracting more margin lending on shares, the latest official lending figures show there is nervousness about taking on debt in the wake of the global financial crisis, The Australian reports.

Spending on home renovation has been sliding since March last year, with the $465 million borrowed for that purpose in November down by 13.9 per cent. Spending on new blocks of land has fallen by 12.7 per cent since it peaked in June.

Borrowing has weakened since mid-year for new and used motor vehicles.

Commonwealth Bank economist James McIntyre said there were signs of increases in borrowing on credit cards and margin lending, but people were not confident enough to spend on holidays, new motor vehicles or extending the house.

He noted that consumer borrowing was a long way ahead of the same time in November 2008, when the global financial crisis was at its peak.

Total personal finance is 15.4 per cent higher now than it was at the worst of the crisis.

The data follows the release of figures on Tuesday that showed a collapse of 6.2 per cent in the number of people seeking a mortgage in November, prompting market speculation about further rate rises this year.

However, Housing Industry Association chief economist Harley Dale said one reason for the fall in spending on renovation was that more people were confident enough to trade up to a new house.

"You would hope to see some sustained turnaround in renovations as general economic fortunes improve and people are more comfortable that house prices are growing in a sustainable way again," he said.

He said there was anecdotal evidence that the number of people upgrading their home was beginning to rise.

Read more on this story at The Australian.