SYDNEY: New data released today by credit bureau, illion, as part of its September 2024 Consumer Stress Barometer, indicates that the consumer credit default risk of Australians has continued to deteriorate over the June quarter, pointing towards further pain and problems.
After a mild improvement over the latter half of 2023, credit risk has deteriorated to a level last seen in September 2023, with every month this year since February 2024 showing signs of deterioration. Both recent and longer-term trends, demonstrated in illion’s data, show no clear signs of moderation, suggesting that Australians will continue to struggle through 2024 into 2025, and possibly longer, depending on their financial stability.
“It’s not the news everyone wants to hear, but the data is telling us the worst may be yet to come,” said Barrett Hasseldine, illion’s Head of Modelling. “The fact is, a sizeable amount of damage has been done to household budgets,” he said. “The reprieve observed in late 2023 appears to have been a ‘false dawn’, with things certainly heading further into the red.”
illion’s data shows that home loan consumers continue to struggle, however credit stress is not confined to them. Renters are also being adversely affected by rising costs, even as there are some recent signs of rental price and interest rate stability.
“Without a re-balancing of household income to out-goings, our data doesn’t suggest any clear improvement in sight for Australians; especially as there is some evidence that unemployment and underemployment are beginning to rise. It could be time to seriously consider the implications of the ‘R’ word.”
Older Australians feel the pinch
The deterioration in mortgage-holder risk has affected all age-groups, but has now spread to older Australians, who are traditionally more shielded from economic peaks and troughs through lower levels of debt.
While the default risk of Australians under 50 has risen by 2 percent in the June quarter, the risk of Australians over 50 has risen by more than 4 percent.
“This may suggest that A, people are taking out mortgages later in life; B, parents are supporting their children while still paying off their own home; or C, people who have serviced debt for many years are still struggling under its weight. One or more of these could be contributing to the stress we are seeing,” added Barrett.
With older Australians perhaps finding it more difficult to move between jobs, this rise in stress could become endemic if an economic downturn, such as a moderate or deep recession, leads to longer-term unemployment.
“Should this happen, we risk having our older population being tipped into the unpredictable rental market, while also seeking government welfare for subsistence. Such an outlook could be socially and economically damaging for Australia,” said Barrett.
Problems by state
The June quarter saw the default risk of Victorian mortgage holders rise by 5 percent; a near doubling of the deterioration seen in the next worst states. The economic wellbeing of Victorian home loan borrowers is therefore of the highest concern, with illion’s data showing recent and longer-term deterioration.
“In Victoria, the average quarterly deterioration in risk since September 2023 has been 3-times higher than in NSW, even though housing affordability has been worse in NSW. Our data points to challenging times in Victoria – they are struggling the most”, added Barrett.
Notwithstanding, illion’s data also shows there has been a sizeable deterioration in the default risk of mortgage-holders in both NSW and WA over the June quarter – both rising by close to 3 percent. While not yet clear, it’s possible that the economic impact from Sydney’s property prices (the average dwelling price now being a huge $1.1million), and from Perth’s significant rise in property prices (an average of 7 percent in the year to June 2024), has contributed to the credit stress of borrowers in these states.
Meanwhile, personal loan-holder risk is now problematic in the southern states – again Victoria has some endemic problems, but the data in South Australia is also concerning. “Stress here seems to be on personal loan holders, rather than mortgage holders, possibly because house prices in SA haven’t been as big an issue,” Barrett added. “However personal loan stress also points to less affluent people finding it tougher in SA.”
Australians turn to non-traditional credit products to spread debts
While mortgage servicing, rental prices, and general expenses are all rising, illion’s data is also showing that Australians are resorting to instalment credit facilities for purchases, with a 38 percent rise in BNPL payment obligations observed in FY23/24.
“The savings of many Australians has been eroded to the point where bank balances are now 54 percent lower than pre-COVID. Sadly, half of this lost balance – 26 percent overall – has occurred in the last two years, with inflation and interest rate rises together erasing the savings of hardworking Aussies,” said Barrett. “It is unsurprising that to manage their household finances some consumers have resorted to taking on debt; a risky approach to making ends meet.
“Overall, the annual amount spent on BNPL services has risen by over 90 percent in the last 4 years. FY23/24 has seen the most substantial annual rise in BNPL spending. This is especially worrying if their disposable income becomes so trapped in a debt repayment spiral, that they risk indebtedness and eventual financial collapse.”
ENDS
Watch the webinar
The latest illion research has established that credit risk has now spread to Australians who are over 50. While this appears to simply be another affected group, the potential fallout is significant.
Please watch as we explore the domino effect of a group traditionally known as the ‘Bank of Mum and Dad’, and the potential impacts for other lenders if they are no longer coping.
About the data
The data included in this media release covers the July 2024 quarter. It has been taken from illion’s sixth Consumer Credit Stress Barometer. This is compiled from the credit data from more than 18 million credit consumers in Australia. illion’s data set is widely acknowledged as being amongst the best in the country.
Media enquiries
David Jones
Head of Corporate Affairs
0477 346 429
David.jones@illion.com.au
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