About 400,000 borrowers behind on a loan payment after 5% rise in arrears

Friday, 29 April 2022

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About 400,000 borrowers are now behind on at least one payment for a loan following a 5% rise in arrears in the last year, credit monitoring bureau Centrix figures show.

Centrix analytics general manager Stuart Baxter said the rise equated to roughly 20,000 more consumers being behind on at least one payment.

Missed payments were most commonly on unsecured personal loans, which included borrowing to finance holidays, home improvements and renovations, purchasing large ticket items like white goods, consolidate debt and emergency cash assistance.

Arrears on secured loans, such as home loans and car loans, remained low.

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Centrix analytics general manager Stuart Baxter says loan arrears have been trending down since the GFC, but that might be changing.

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However, Baxter said the up-tick in the numbers missing payments and an average credit score drop of 3 points over the past month, data suggested more arrears and defaults would occur in the next year.

“For the last decade we have seen the proportion of consumers missing their payments improve year after year post the late-2000 GFC (global financial crisis),” he said.

“Now we are starting seeing signs that more and more borrowers are getting into difficulty to meet those payment obligations.”

During the GFC, the number of people missing payments would have been about 100,000 higher, Baxter said.

He put the increase in missed payments down to rising living costs created by the highest inflation in 30 years stretching finances.

Overall, the number of people missing payments was on-par with similar places around the globe.

Household debt in March had rapidly slowed, with annual growth at 1.5%, compared to a 12% rise six months prior.

Baxter put this down to house prices and house sales flat lining or dipping.

“While it’s still up year-on-year I suspect in a few months time we will start seeing that going backwards as the housing market is currently in retreat,” he said.

Missed payments on home and car loans continued to improve year-on-year, with only about 1% of home loan borrowers and roughly 4% of car loan borrowers having missed a payment.

With interest rates expected to rise, Baxter expected the number of home loan borrowers missing repayments to rise. But, he did not expect the rate of arrears to hit levels experienced during the aftermath of the GFC.

Arrears on buy now, pay later (BNPL) accounts had also risen sharply in the last two of months.

Baxter said there were just over half a million consumers using BNPL services, and about 40,000 of them had missed at least one payment.

BNPL, unlike credit cards, don’t usually charge an interest rate and instead have charges for late payments – usually between $6 and $10.

He said amounts owned were generally smaller on BNPL loans, but arrears usually preceded issues paying loans on larger ticket items like homes and cars.

Baxter said there were no signs yet of a big credit bubble bursting, and the ingredients for one did not appear to be present.

Unemployment figures were the most important to watch, which, as long as they remained low, would stop any high levels of distress, he said.

“I wouldn't call this a GFC part-two.”