According to the latest AMP
/NATSEM income and wealth report – Buy now, pay later: Household debt in Australia
– average Australian household debt has risen from $60,000 in 1988 to $245,000, after inflation. This is growth of 5.3% above inflation each year, outstripping income growth of just 1.3%.
In addition, the ratio of household debt to disposable income has almost tripled, from 64% to 185% over the same period.
The report cites declining interest rates, low unemployment and a strong economy as the main factors driving Australians to take on more debt, as the impact of average repayments have been cushioned.
However, for Australia’s most indebted households with a mortgage, the extra debt means that a 2.5 percentage point rise in interest rates would bring mortgage interest repayments to at least 58% of household income, up from the current 42%. These households would need to find an extra $16,615 a year just to cover interest payments, which would increase from $43,926 to $60,541 a year.
For households with a mortgage and a typical level of debt, a 2.5 percentage point increase would mean debt repayments would rise from 16% to 23% of income, taking annual interest payments from $15,464 to $21,687, or an extra $6,223 per year.
Debt levels for first home buyers have risen to 3.6 times their annual disposable income, up from 3.1 in 2004. For the typical first home buyer, a 2.5 percentage point rise in rates would increase interest repayments as a percentage of disposable income from 21.2% to 30.2%, or an extra $8,047 a year.
According to the report, 90% of Australian household debt is being used to buy a home or to build wealth through investing. Of this, 56% of debt is related to a mortgage and 36% is related to investing in rental properties or shares.
Australian households now have the fifth highest debt levels in the world, with more average household debt than comparable economies like Canada.
Average Australian household debt has quadrupled over the last three decades, according to a new report, with average household debt now sitting at almost $250,000.