Delinquency rates hit level not seen since the onset of the pandemic
Delinquency rates on home loans in Australia have surged, reaching levels not seen since the onset of the COVID-19 pandemic before government support measures were implemented.
An Experian analysis of the latest credit data showed that 1.41% of all home loans were in arrears in Q2, marking a fifth consecutive monthly increase and the highest level since the pandemic escalated in March 2020, according to a new report by The Australian.
“We are starting to see financial stress come through in the credit data,” Experian credit services client advisory director Charlotte Rankin told The Australian. “We saw a real reduction in missed payments through COVID because of the programs that were implemented to support consumers during that period. But there’s now an upward trend in delinquency levels, and are now back at the levels before those programs came in place.”
The late payment statistics for mortgages, credit cards, and personal loans for the months of May and June are likely to be even higher due to the Reserve Bank's cash rate hikes in those months, which raised the rate to 4.1% before pausing in July.
Experian's data also revealed a decline in credit demand, with buy now, pay later (BNPL) product applications showing the steepest fall, followed by credit cards, home, and personal loans, The Australian reported. Notably, applications for BNPL products in April were 34% below January 2020 levels, reflecting a decline in demand after experiencing a surge during the pandemic.
The rise in delinquency rates for personal loans, reaching 5.8%, has raised concerns about higher stress affecting home loans, as people prioritise their property repayments while struggling with other credit obligations.
Read next: Credit default risk on the rise
Moody's Investors Service reported a rise in 30-day arrears in prime quality home loans, primarily offered by non-bank lenders, to 1.26% in March. Banks have been warning of increasing mortgage stress, particularly for fixed-rate mortgage borrowers who had low rates a year ago but are now facing higher rates while refinancing their loans.
As the Reserve Bank remains vigilant about inflation, money markets indicate a roughly 60% chance of another rate hike at the upcoming policy meeting, with CPI and employment numbers being crucial considerations, The Australian reported.
Experian's data also shows a decline in demand for home loans and credit cards, compared to 2020 levels, reflecting the economic uncertainty and growing financial stress among borrowers.
Have something to say about this story? Let us know in the comments below.
