As interest rates have bitten hard into the budget of Australians in 2023, new research released by credit bureau illion today shows that households with a mortgage in Australia’s two major capital cities are continuing to struggle, whereas mortgage-holders in most other capitals are finally showing some early signs of a turnaround.

The same is also true when it comes to payment defaults for consumers with personal loans and credit cards.

“illion’s latest Australian Consumer Credit Stress Barometer for the September quarter shows Sydney and Melbourne consumers have dealt worse with higher housing cost inflation over Q3 compared to the Australian average.

“On a state-by-state basis, the default risk of mortgage-holders in NSW has not improved (0%), while the risk of mortgage-holders has deteriorated in VIC (2.5%) and in NT (14%).

“The situation in NT may be due to unique circumstances, but the situation in NSW and VIC appears to be highly aligned to rising housing costs.

“The rising cost of living appears to have weighed more heavily on households whose income growth has not kept pace with inflation, or where savings/assets have been insufficient to absorb this additional expense, said Barrett Hasseldine, illion’s head of modelling.


Middle Australia feels the heat

Mr Hasseldine said the latest research also reveals that two groups stand out in terms of the highest deterioration in default risk over 2023; the very young (under 21s) taking on credit for the first time, whose default risk increased by 12% in the year to September and, contrary to past observations,  mature age borrowers in their 40s, whose default risk has increased by 10%; most likely from higher priced mortgage debts. This means that, in Australia, having a mortgage may no longer be the Australian dream, although renting keeps many awake at night.

“As well as the rise in mortgage-related default risk, we have also seen that rising rents (30% since January 2022), medical bills and fuel costs are squeezing the welfare of middle Australia (especially those living in outer suburbs), with fuel costs also rising by 23% in the year to Sept 2022 and then a further 8% in the year to Sept 2023.

“In most cases, this is a fixed commuter cost, which has an inequitable effect on Australian households, with those in the outer suburbs more heavily affected. These middle Australians will be pleased that fuel costs are now at least showing some signs of stabilising.”

“Unknown to many, medical costs, mainly doctor’s fees, have risen substantially too; 7% in 2022 and then a huge 15% in 2023. These cost increases affect lower income Australians disproportionately, either through more stressed budgets, longer waiting lists at bulk billing clinics, or fewer doctor visits.

“None of these options are good, and we may expect a compounding rise in health problems and the erosion of the basic wellbeing of Australians,” he said.

“Home loan borrowers and renters generally, are burdened by higher servicing and housing costs, making them quite vulnerable now,” he concluded.


Turnaround or a dead cat bounce?

While illion’s Credit Stress Barometer continues to show a long-term trend to deteriorating credit default risk, it also indicates a possible turnaround in Q3 2023. Other than the groups highlighted above, there are some positive signs that Australian consumers have started to adjust to their economic circumstances in Q3 2023 and are potentially better positioned to manage these risks.

“There is still a higher risk of consumers defaulting on their credit cards and personal loans, but that risk has come down slightly in the last quarter, said Mr Hasseldine.

“We have seen the first sign of an improvement in the past 12-months. Younger Australians (aged 21-39) are now less likely to default, probably because they have cut back on discretionary spending.

“All-in-all, July, August, and September 2023 have been another challenging quarter for Australians, and although economic circumstances have not improved in a material way, it’s encouraging to see the pressure not increasing for Australians with credit cards and personal loans.

“However, the impact of November’s interest rate rise, and any additional short-term rises, may have an unfavourable impact on this trend and tip Australia back into higher stress. This next quarter may be the one that confirms whether it’s light at the end of the tunnel, or the proverbial freight train,” added Mr Hasseldine.


About the data

The data included in this media release has been taken from illion’s third 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.

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