Australian credit demand accelerated sharply in the final quarter of , coinciding with the Reserve Bank of Australia’s (RBA) shift towards a tighter monetary policy stance. The surge in borrowing, particularly for mortgages, suggests consumers anticipated the RBA’s subsequent interest rate increase in .
According to a report by Equifax, mortgage applications rose by 12.3% year-over-year in the fourth quarter. Demand for credit cards also saw a significant increase, climbing by over 15% during the same period. This represents the highest growth in mortgage demand observed in the last five years, according to Kevin James, Customer Solutions Director at Equifax.
The increase in mortgage applications was fueled, in part, by the expansion of the First Home Buyer Deposit Scheme to 5%, effective . James also attributed the surge to a widespread expectation that interest rates had peaked by the end of the year, prompting prospective buyers to lock in favorable terms before the increase of 25 basis points.
While mortgage delinquency rates remained stable, the overall value of arrears increased by 6.8% year-on-year. The average loan amount in advanced arrears rose by over 8%, reaching $403,000, reflecting rising house prices and larger loan sizes. This suggests that while fewer households are falling behind on payments, those who are are facing increasingly substantial debt burdens.
Equifax highlighted a growing concern: the increasing number of individuals aged 66 and over entering retirement with significant outstanding mortgage debt. This demographic faces heightened vulnerability in a rising interest rate environment.
Beyond mortgages, other credit segments also showed expansion. Non-secured credit increased by 5.9%, while personal loan applications rose by 8.9%. However, vehicle financing experienced a decline, falling by 5.4%.
The growth in mortgage demand was primarily driven by Generation X (– aged 46-55), while the surge in credit card applications was attributed to Generation Z (– aged 18-30), with a 23.2% jump in applications. This demographic shift contributed to a 28.8% increase in credit card arrears.
In response to the increased demand and potential risks, credit institutions have been reducing average credit limits. New credit card limits were lowered by 8.3% year-over-year, and personal loan limits were reduced by 3.9%. Equifax interprets these actions as a sign of increased caution among lenders.
While the number of personal loan insolvencies slightly decreased, the amount owed by those in financial difficulty continued to rise. With the RBA having already increased rates in and further increases anticipated as early as , the pressure on household finances is expected to intensify in the coming months.
The broader economic context, as indicated by the Australian Bureau of Statistics (ABS) release on , shows the Australian economy grew by 0.4% in seasonally adjusted chain volume measures in the September quarter. Nominal GDP rose by 1.7%. The household saving to income ratio also increased to 6.4% from 6.0%, potentially providing some buffer against rising debt servicing costs. However, the ABS also noted the inclusion of estimates for household solar electricity generation in the quarterly Australian National Accounts for the first time, a factor that could influence household disposable income calculations.
The KPMG Australia Economic Outlook Q4 reported that the federal government’s Mid-Year Economic and Fiscal Outlook (MYEFO) revised the deficit forecast for down to $37 billion, an improvement from the $42 billion projected earlier in the year. This improvement was largely driven by stronger tax receipts, boosted by higher income tax collections and elevated global commodity prices. While a positive fiscal development, it doesn’t necessarily alleviate the pressure on households facing rising borrowing costs.
Fidelity’s Q4 Quarterly Market Update highlighted that global equities reached record highs in the third quarter, but tech gains slowed, making earnings growth the key driver of broader market performance. The report also noted that US stocks are trading above long-term averages, suggesting potential value in non-US markets and bonds. This could influence investor behavior and potentially impact credit demand as investors rebalance portfolios.
