One in two mortgage holders over-indebted

by Miklos Bolza29 Sep 2017
Almost one in two households with a mortgage are over-indebted, according to new analysis from CoreLogic.

Examining the data from the Australian Bureau of Statistics (ABS), CoreLogic head of research Cameron Kusher looked at trends amongst households seen as ‘over-indebted’ which the ABS defines as having debt three or more times their income or 75% or more of the total value of their assets.

He found that the ABS considered 47% of households owned by those with a mortgage were over-indebted while 52.4% were not. This was high compared to households owned by those without mortgages (ie not renting) for whom only 3.5% were over-indebted. In this group, 46.8% of households were debt-free.

Cameron stressed that the definition of ‘over-indebtedness’ was one created by the ABS and was not in itself a definitive measure. The ABS’s measure of three times income is lower than the typical limit of four times given by most lenders.

“What it probably highlights is what the ABS considers to be over-indebted and what the lenders consider to be over-indebted is quite different. Also to get into the housing market, you also have to take on a little more debt than what’s ideal at the moment given where prices are,” he told Australian Broker.

It is still important to consider that people are taking on a lot of debt, Kusher said.

“The usefulness of the data is to look at the levels of debt across different household characteristics. Obviously, what you’re finding is the people who are older and retired are most likely to carry less debt than people who are in the middle of their working life usually with a family.”

However, these households were probably more comfortable carrying this debt as they had greater levels of income and better earning potential, he said.

Related stories:

Major bank restricts lending in select postcodes

Shadow banks inflating apartment risks

Dwelling price growth continues