According to Illion, the credit default risk of Australian consumers has risen over 8% in the year to March 2023.

Following the relative stability over the first half of 2022, the default risk has climbed 7% since November 2022 and 4% in January 2023.

Illion said there are six direct causes of this increased credit stress among borrowers, including:

  • Increasing overdue home loan repayments since January 2023
  • Rising overdue repayments on consumer credit contracts since September 2022
  • Bigger credit demand for consumer credit
  • Declining deposit balances since September 2022 with no apparent turnaround
  • Significantly higher and on-the-rise rental obligations since early 2022
  • Stretched budget expenditure on essential categories since October 2021

Deteriorating credit repayment behaviour

The report showed several signs of worsening repayment behaviour among Australian borrowers.

In fact, delinquency rates among borrowers with personal loans and credit card loans are up 5% to 10% year-on-year in the first quarter of 2023.

In the mortgage space, delinquency rates are on the rise since March 2023, up 5%.

While delinquency rates are on the rise, credit demand has significantly increased year on year to April 2023, with 14% higher demand for consumer loans and 40% higher demand for revolving credit.

Declining deposit balances and stressed household budgets

Illion’s also cited falling deposit balances and burdened household budgets as a major influence affecting credit stress among Australians.

Savings balances fell substantially since August 2022 after a period of stagnation, affected by cash flow stress. This led to the 20% year-on-year decline in monthly savings balances in the first quarter of the 2023.

This was driven by the higher rental costs since mid-2022, which show no signs of easing and are rising at the highest rate.

Furthermore, household budgets are fully stretched, with spending for supermarket and groceries up 5% year-on-year in the March 2023 quarter.

According to Illion, those whose budgets are fully stretched and financially vulnerable do not have room for additional spending this year, unlike in previous years which saw a drop post-Christmas and post-tax year.