Credit bureau Centrix finds growing numbers of people defaulting on debt and construction liquidations on the rise

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The number of people missing consumer debt payments rose for the third straight month in May, with the number of people in arrears rising nearly 12% year-on-year, according to credit bureau Centrix.

In its June Credit Indicator, Centrix also indicates that more than 100 construction companies went into liquidation in 2022, with defaults up 10% compared to the same period in 2021.

However, Centrix’s June Global Report paints a somewhat mixed picture. It says 8,750 consumer borrower accounts were in trouble in May, the lowest number since December 2019, and at 1% the proportion of home loans with missed payments remained low.

But, as the economy tightens, more households are expected to struggle to pay all their bills.

“In May, the number of people missing repayments increased for the third month in a row, bucking the typical seasonal pattern at this time of year. up 11.7% from the same time last year, indicating that some consumers are beginning to experience financial hardship,” said Centrix CEO Keith McLaughlin.

According to Centrix, buy it now, pay later (BNPL) and demand for new credit cards fell in May, down 32% and 22% respectively year-over-year. New residential mortgages are down 34% from the wave of low interest rates a year ago, but are only 4% down from the pre-Covid world of May 2019, suggesting a return to pre-pandemic levels, according to Centrix.

With amendments to the Credit Agreements and Consumer Credit Act (CCCFA) designed to address complaints the lending industry has raised about previous changes start July 7Centrix suggests it will be interesting to see if these changes boost lending.

Separately, McLaughlin says construction companies face significant challenges as material shortages, rising costs and a slowing housing market combine to put pressure on the sector.

“More than 100 construction companies have gone into liquidation so far this year and defaults are up 10% from the same period in 2021. Across the country, 25% of all construction liquidations companies in May came from the construction sector. The average credit score for new credit applications across the industry is down 8 points as the potential risk of default increases across the industry,” McLaughlin said.

Despite the difficult times in the construction sector, Centrix says that overall business closure and liquidation rates are low, demonstrating a level of resilience in the economy.

“Closings were down 37% in this quarter compared to the previous quarter, and business liquidations were also down 14% year-over-year. However, business credit defaults are starting to increase, particularly in the construction and hospitality sectors, as they experienced the highest default rates since the last quarter of 2019.”

“Similarly, demand for credit in the hospitality sector fell sharply at 21% year-on-year, and demand for agricultural credit fell 24% year-on-year,” McLaughlin said.

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