Jump in families falling behind on home loan, credit card repayments

The analysis, based on data from 18 million credit users, found that financial stress, which has been building all year, intensified in the June quarter.

The number of households behind on their mortgage repayments was 10 to 15 per cent higher than the same time last year while arrears on credit card repayments was up by 30 to 40 per cent, illion's head of modelling Barrett Hasseldine said.

Mr Hasseldine said the growth in late payments on home loans was a major concern.

"The fact that home loan delinquencies has grown so much, and is still growing, is the most worrying thing," he said.

The economist said households typically prioritised home loan repayments so evidence that families were slipping behind was a sign of significant financial stress.

The rate of home loan defaults remains low but is expected to increase as high inflation and interest rates bite more deeply into household finances.

Mr Hasseldine said there was also evidence that intense financial pressure was causing consumers to taking on greater personal risk.

He said there had been a significant 10 per cent decline in spending on health insurance, suggesting people were dropping or reducing cover or increasing their claim excess to save on premiums.

The economist warned that the move could save in the short term but increased financial risk in the longer term.

"It frees up cash flow but reduces the safety net if there are any health events in the future," he said.

The agency's credit stress barometer has been rising since last November and Mr Hasseldine said in the June quarter it increased further to be 11 per cent higher than a year earlier.

He said the increase reflected a substantial increase in overdue repayments on home loans, credit cards, personal loans and other borrowing.

At the same time, demand for credit cards has increased and personal savings have shrunk.

Savings balances have been depleted since the pandemic and in the June quarter were between 25 and 30 per cent smaller than a year earlier, Mr Hasseldine said.

According to the illion barometer, households are increasingly turning to credit cards to help relieve some of the short term financial pressure.

Mr Hasseldine said during the pandemic credit card usage declined but that has since turned around and demand was now 50 per cent higher than two years ago.

"It is very commonly used as a budgeting tool," he said. "Taking out a credit card can help smooth out the monthly cash flow but it can actually increase the cash flow pressure if you fall behind on repayments and have to pay interest."

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He said that households who have taken on extra debt to manage may be forced to delay major purchases like household goods, adding to the drag on consumer spending.

Household spending grew by just 0.1 per cent in the June quarter and declined in per person terms.

Because consumer spending is a major driver of economic growth, the slowdown has fueled expectations that the economy will slow sharply in coming months and through 2024, helping drag inflation lower but causing unemployment to rise.

The Reserve Bank of Australia expects the economy to expand by just 0.9 per cent this year and 1.6 per cent in 2024, helping push the jobless rate to 4.5 per cent by mid-2025.

Mr Hasseldine warned that there was little sign of conditions easing for households and, in fact, could intensify.

"There is no real evidence yet that a turnaround in credit stress is in sight. In fact, the current trend suggests that credit stress is continuing to climb, with no clear improvement observed as yet," he said.

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