Australian lenders are being urged to strengthen borrower risk assessment and credit monitoring practices as fresh 2025 data from illion’s Consumer Stress Barometer reveals a sharp rise in credit default risk, particularly among renters, low-income families, and younger borrowers.
The trend underscores growing financial pressure on vulnerable groups and highlights the need for real-time credit health tracking and proactive borrower engagement.
According to illion’s June 2025 Consumer Stress Barometer – an index that tracks the probability of Australians defaulting on credit within the next 12 months using loan arrears, credit usage, and spending behaviour – the proportion of consumers at risk rose by 3.8% in the first half of 2025.
The shift reverses earlier improvements in financial stress and highlights renewed vulnerability in key borrower groups.
The illion report, based on millions of credit-active Australians, shows that renters, young families, and low-income households are bearing the brunt of rising living costs, depleted savings, and shrinking access to financial relief.
“The latest figures should serve as a clear warning to lenders,” said Barrett Hasseldine (pictured), head of modelling at illion, an Experian company.
“While mortgage holders may be seeing some stabilisation, default risk is quietly rising again, particularly among borrowers with no property equity, limited savings, and rising debt commitments. It’s essential that lenders continuously profile and reassess borrower risk, not just at the point of onboarding, but throughout the lifecycle of a loan.”
However, it’s worth noting that recent APRA data shows that overall mortgage arrears remain historically low – edging up slightly from 1.64% in Q4 2024 to 1.68% in Q1 2025. The rise is modest and well below the 2020 pandemic peak of 1.86%.
The data revealed that household savings fell 4.5% nationally since January, with renters facing the steepest declines. For non-homeowning households, rents surged by 6.8% in H1 2025, far exceeding wage growth, which sat at 4.2% according to the ABS. For low-income families with children, the rental increase reached 10%.
In parallel, credit default risk for households with dependents climbed 6.3%, nearly double the national average. Among Australians aged 25-39, credit card delinquency spiked 8%, as many turned to revolving credit to cover essential costs like groceries, petrol, and rent.
“Many young families are being stretched financially,” Hasseldine said. “They’re juggling rising costs with limited buffers and often turning to credit to stay afloat. The challenge for lenders is how to proactively identify and support these borrowers before they fall into arrears.”
The Consumer Stress Barometer measures percentage changes in national credit risk against a January 2022 baseline, smoothing fluctuations with a three-month rolling average to give lenders and policymakers an early view of emerging stress. The June update makes clear that deteriorating financial conditions – particularly among non-mortgaged segments – require lenders to act decisively.
“From our perspective, continuous credit health monitoring is no longer optional – it’s essential,” Hasseldine said. “Lenders need to be equipped to detect early warning signs and ensure support is offered early.”
To meet this challenge, financial institutions are encouraged to adopt real-time, data-driven risk strategies such as:
By embedding these approaches, lenders can manage credit risk more effectively while also supporting borrowers under growing financial strain.
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