Study reveals rising missed repayments on personal loans and newer mortgages
While overall missed repayment rates remain low in Australia, certain groups of borrowers are exhibiting rising levels of financial stress, a recent report from global data and technology firm Experian has shown.
Younger borrowers, multiple account holders, and those who opened credit accounts within the last five years are among those facing the most significant pressure, according to the company’s latest Risk Radar report, which revealed an uptick in several indicators of financial stress between fiscal years 2021-22 and 2023-24. The report combines insights from 30 Australian risk leaders and analysis of millions of credit-active customers.
Key findings include a 10% increase in accounts with missed payments, a 38% rise in accounts that are three payments behind, and a 28% increase in accounts four or more repayments behind — levels at which lenders typically write off loans. Despite the increase in financial stress indicators, missed repayments remain low at 0.8% of total accounts over the last financial year.
Auto and personal loan accounts have seen the sharpest increases in missed repayments. Since 2022, 42% more auto loan accounts are one or more payments behind, with 6.1% of accounts in arrears in 2024. Personal loans show the highest rates of stress, with 6.7% of accounts behind, a 38% rise since 2022. By contrast, credit card accounts have remained relatively stable, with much lower rates of arrears.
Mortgage holders are also under growing pressure, with a 40% increase in home loans behind on payments in 2024. Mortgages opened after 2019 are particularly vulnerable, with default rates five to six times higher than those for older loans. Nearly twice as many home loans issued in 2023 saw missed repayments within their first six months compared to loans issued in 2021.
“Chief risk officers and key risk strategy decision makers at Australian credit providers have been preparing for worst-case scenarios over the last 12 months to navigate their loan book through the tumultuous economic conditions,” said Charlotte Rankin, director of client advisory at Experian.
“Despite not expecting economic risk factors to get worse, most risk leaders expect that borrowers will continue to falter at higher levels under the weight of current financial pressures.”
Still, 77% of credit risk leaders believe Australia has passed the worst of the economic downturn, with most predicting recovery within one to two years.
In the meantime, 69% of risk leaders expect higher rates of missed repayments and delinquencies over the next 12 months. As a result, lenders have tightened their lending criteria, with 42% making it harder to qualify for loans, compared to 32% last year.
Experian’s fourth annual Risk Radar report also revealed that younger borrowers were feeling the brunt of the tighter lending environment. Gen Z is the only age group taking out more personal loans — up 17% — but they also show the highest increase in missed repayments, up 26% since 2022. Accounts held by Gen Z borrowers that are three or more repayments behind have surged 42% over the same period.
Meanwhile, managing hardship claims is a key concern for lenders, particularly following a critical report from ASIC in May 2024 that highlighted shortfalls in hardship support. Nine out of 10 risk leaders cited managing financial hardship as their top priority. Experian data shows that personal loan accounts are twice as likely to have hardship indicators compared to mortgages and auto loans, though overall levels remain low.
Despite the challenges, lenders are working to improve the speed of loan application decisions. Seventy-three percent of risk leaders reported reducing the time it takes to assess applications in the last year, and more than half have streamlined their responsible lending processes. However, access to reliable data remains a major obstacle, with 77% of risk leaders citing it as their biggest challenge.
“By leveraging reliable transaction and alternative data sources, lenders can now assess applications faster, providing clearer outcomes for customers in record time,” said Jordan Harris, head of innovation at Experian.
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