Credit approvals for mortgage loans and consumer finance have continued to be negatively impacted by changes to credit rules.
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The latest credit data from Centrix shows lending had become more restrictive since changes to the Credit Contracts and Consumer Finance Act (CCCFA) came into effect in December, as the number of approvals fell again in February.
The drop in credit approvals was possibly reflected in the value of new residential mortgage loans put in place. They fell 21 percent in January compared with the year earlier, with nearly $1 billion in reduced lending.
Centrix managing director Keith McLaughlin said "December dropped off as a result of, we think the CCCFA, but that trend has continued and it's probably about 5 percent down as a conversion rate to what it wouldn't be normally".
"Our data shows the proportion of mortgage applications resulting in approval has fallen to 34 percent in February, while consumer finance conversion fell from 35 percent to just 28 percent of applications," the Centrix report said.
McLaughlin said people with high credit scores were most affected by the CCCFA, as those with a low credit score would have been declined anyway.
"What we are finding now is that with a second hurdle, which is the affordability determination, some of those people who would have passed the credit risk component, are now been declined on the affordability scale," he said.
In any case, credit demand was flat last month, which was partly because of a drop in business and consumer confidence but also a downturn in the number of credit checks.
"The decline rate may be bigger than what we can see, as we know some lenders have opted to assess affordability before running a credit check," the report said.
McLaughlin said arrears were also on the rise, with increases across all regions, although it was too soon to say if it was a trend.
"Despite rising interest rates, mortgage arrears remain low, thanks to the large number of fixed mortgages.
"It is inevitable, however, that rising rates will eventually place increased pressure on households who are also facing rising inflation."
The number of consumers and businesses in arrears was up, but in line with historical levels, he said.
Business and consumer credit arrears levels increased across all regions in January.
About 400,000 consumers were currently behind in repayments, with personal loans arrears particularly high.
Business credit defaults increased 4 percent in February as Omicron, and ongoing border and capacity restrictions continued to challenge construction, hospitality and retail sectors.
"The retail sector is one of the hardest hit, with credit defaults up 24 percent year-on-year," the report said.
"The impact of this wide range of market forces means it is more important than ever for businesses to take proactive steps and manage their credit risk in this highly volatile credit environment," McLaughlin said.
