Home loan delinquency rates rise as demand for credit plummets: Experian

Home loan delinquency rates are rising to levels unseen since the start of the pandemic, while demand for credit, especially BNPL, has plummeted.

Home loan delinquency rates across banks and non-bank lenders are surging, reaching levels not seen since the start of the Covid-19 pandemic, before government support measures were implemented.

More Australians are also falling behind on their personal loan repayments than at any time in credit bureau Experian’s records, which date back to 2019, when comprehensive credit reporting began in Australia.

Experian’s analysis of the latest credit data, released exclusively to The Australian, shows 1.41 per cent of all home loans were in arrears, up from 1.39 per cent a month earlier, and the highest level since the pandemic ramped up in March 2020.

“We are starting to see financial stress come through in the credit data,” Experian credit services client advisory director Charlotte Rankin said.

“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.”

It was the fifth consecutive monthly increase in mortgage arrears and a third of a percentage point higher than in April 2022, before the Reserve Bank raised the cost of money 10 times from nearly zero to 3.6 per cent over the following year as it sought to slow down the economy to avoid high inflation becoming entrenched in people’s expectations.

The late payment statistics across mortgages, credit cards and personal loans in the more recent months of May and June are likely to be even higher, given the RBA hiked the cash rate again at policy meetings in those two months to leave it at 4.1 per cent before pausing in July. The numbers from the credit bureau also show demand for credit has plummeted, with applications for buy now, pay later (BNPL) products falling the most, followed by credit cards, home and personal loans.

Experian is one of the three largest credit bureaus in the country. It collects data from credit-licensed companies every month, including banks, non-bank lenders and BNPL companies.

Arrears data shows the proportion of accounts that have missed at least one payment in the previous 15 days.

It includes close to 90 per cent of all credit products in Australia.

Missed payments on credit cards have risen for the third consecutive month to sit at 2.08 per cent of all credit card accounts, the highest level since April 2020.

Close to 6 per cent of all personal loan borrowers had missed at least one repayment in April, the highest in 15 months.

The Experian numbers follow the release of statistics by credit rating agency Moody’s ­Investors Service, which earlier this month said 30-day arrears in prime quality home loans mostly provided by non-bank lenders had risen to 1.26 per cent in March. 

While it takes about two months for all credit-licensed companies to report comprehensive data to the bureaus, the latest statistics confirm what banks have warned of in recent weeks: mortgage stress is climbing – albeit from low levels – and will continue to do so. 

The rapid increase in the cash rate has meant many fixed-rate mortgage borrowers paying only 2 per cent on their mortgage a year ago are now being forced to refinance their loans at about three times that rate, squeezing household budgets.

The spike in personal loan arrears to 5.8 per cent, from 4.8 per cent in April last year, was an ominous indicator of higher stress to come on home loans, Ms Rankin said.

“Generally … people will make sure they are making their repayments on their property, but if they are starting to struggle with their cash, their personal loan or their credit card repayments are going to be what they don’t pay first, before they miss the payment on their ­mortgage.”

After pausing in July, the RBA has made it clear that it is prepared to do more to fight inflation, which is past its peak but remains well above the bank’s 2-3 per cent target.

Money markets are pricing in a roughly 60 per cent chance of a hike at its upcoming policy meeting next week and forthcoming CPI and employment numbers in coming days will be key considerations in its ­decision.

According to Experian data, demand for BNPL plummeted in April to be 34 per cent below applications in January 2020. Demand for the instalment payment product skyrocketed during the pandemic, when Australians confined to their homes were spending part of their generous government ­support payments on online purchases.

After almost three years of solid demand for home loans, mortgage applications fell in April to be 18 per cent below 2020 levels.

Credit card applications had surged in the first three months of the year, before crashing again in April to be 29 per cent lower than the January 2020 levels.