Wellington, July 16 NZPA - Loan defaults are up sharply and new loan applications are down, according to credit information company Veda Advantage.

Consumer defaults were up 7 percent in the first half of the year compared to the same period last year and commercial defaults leapt 24 percent.

There was a 21 percent drop in mortgage applications in the first half of 2008 compared to the same period last year.

Total credit enquiries were down 10 percent in the same period.

The largest portion of the increase in consumer defaults came from the Generation Y group (people under 30) whose defaults increased by 8 percent when compared to the same period in 2007.

Defaults have noticeably increased in certain sectors, with sharp jumps in the number of people defaulting in basic bill payments such as phone, up 148 percent, and internet bills, up 100 percent, Veda Advantage New Zealand director John Roberts said.

"We're now starting to see the impact that increased living costs are having on households and consumers starting to feel the pinch, unable to meet required payments."

The 24 percent increase in commercial defaults was an indication that small to medium sized businesses were struggling to meet financial obligations as the economy slows.

"A 24 percent increase in defaults is fairly significant, and a lot of businesses are struggling," Mr Roberts said.

"SMEs are a leading indicator for the state of the economy, and the fact that we've seen such a substantial rise in the number of defaults in the commercial sector is a worrying sign that we are slipping into recession," he said.

Veda said there was an increase in the number of people applying for mortgages from March to May which hinted at some stabilisation in the housing market, but there was a 10 percent drop off from May to June.

"Without doubt, things look quite bleak for the property market at the moment."

Total consumer credit enquiries for the first six months of 2008 were down 10 percent on the same period last year, which the third consecutive year of decline in consumer credit applications.

But applications for credit cards were up 10 percent.

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