Australians face mounting household debts

Banks heed warning signs of loan losses while maintaining cautiously optimistic outlook



Despite Australia ranking second in terms of global wealth, Australian households have been facing increasing debt for over a decade, Digital Finance Analytics has reported.

According to Credit Suisse’s most recent global annual wealth report, Australia placed second in global rankings with an overall figure of US$376,000, next to Switzerland’s US$562,000. The country also placed second in terms of median wealth – a more accurate indicator of inequality, at US$162,815, while Switzerland’s was at US$244,002, and the US farther behind at US$44,977.

Nevertheless, from 2000 to 2016, average household debt for Australians has quadrupled, while wealth has gone up only by 2.5 times. These results coincide with Moody’s recent announcement that the number of Australians 30 days behind their mortgage payments is at its highest in three years, and will continue to increase.

Currently, debt takes up 20.7 per cent of gross wealth, a 0.4 per cent hike from last year, and now amounts to US$98,004 per adult, as opposed to US$97,189 last year.

According to University of Technology Sydney Business School professor Harry Scheule, increases in wages have been minimal, which has led to inflated debt given more drastic increases in house prices. With the tightening of the job market and series of interest rate hikes, delinquencies may well continue.

As a result, banks are expected to set more and more provisioning for the delinquencies that may go quickly from 30 days to 90 days. On passing 90 days, provision begins at 5% of the loan, and then goes up to 20% upon reaching the one-year mark.

Yet, even with the peaks in debt numbers, delinquency rates in Australia are still significantly below the numbers reached in the US during the global financial crisis. Scheule also thinks an economy bust to be unlikely in the short run as house prices may be up in the cities but are going down in areas related to the mining sector.

The banks also consider Australia’s current position as “still resilient”, with “relatively low” level of wealth inequality, and are expecting as much as 34% growth in wealth for the next five years.

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