13 Feb 2014

Lending rules blamed for spending drop

7:00 am on 13 February 2014

Infometrics senior economist Matt Nolan blames a drop in spending on furniture, hardware and appliances on the new rules on lending to people with low mortgage deposits.

Core retail spending using electronic cards fell 0.8 percent last month, with the biggest fall in the durables sector. It fell 1.3 percent compared with December.

Mr Nolan said durable goods spending has been falling since loan-to-value restrictions were put into place.

He says durable goods spending fell a lot in December when the restrictions were put in place, but then rose in August and October, so over those three months spending was actually still quite strong.

But Mr Nolan said since then durable goods spending has dropped each month.

He says when people buy a house they often replace whiteware or they may buy new furniture and sometimes they will put that on the mortgage.

But Mr Nolan said with the loan to value restrictions people may have to delay these purchases even if they buy a house.

He said fewer people are also buying houses because of the restrictions.

Mr Nolan said he expects the drop in durable spending to be short-lived and overall consumer spending will rise as employment climbs and migration increases.