Consumers shunning line of credit loans

by Adam Smith20 Jan 2012

Line of credit loans have hit a near 13-year low as offset and redraw facilities gain in popularity.

Figures from the Australian Bureau of Statistics show the loans fell to only 3.7% of total home loans in November, a figure that marks the lowest demand since May 1998.

Loan Market chief operating officer Dean Rushton has claimed that the shift is indicative of more cautious consumer behaviour.

"Line of credit home loans for residential finance that were more in favour during the early to mid-2000s appear to be headed for the mortgage museum as a result of the GFC," Rushton said.

"It certainly speaks to the shift in both the market and consumer behaviour to see the reduction of revolving lines of credit in the home loan market."

Rushton postulated that borrowers were moving toward offset accounts and redraw facilities for the "forced discipline" of repayments along with the availability of cash. He also pointed to high interest rates on line of credit loans, saying they were generally 10-20bps higher than other mortgage products.