About 400,000 borrowers in arrears after 5% rise in arrears

Around 400,000 borrowers are now behind on at least one payment for a loan after a 5% rise in arrears last year, according to figures from credit monitoring bureau Centrix.

Centrix Analytics chief executive Stuart Baxter said the increase equated to around 20,000 more consumers falling behind on at least one payment.

Missed payments were most often for unsecured personal loans, which included borrowing to finance vacations, home improvements and renovations, the purchase of large items like appliances, debt consolidation and cash assistance emergency.

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

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Centrix Analytics managing director Stuart Baxter said loan arrears have been trending down since the GFC, but that could change.

Clay Benches/Unsplash

Centrix Analytics managing director Stuart Baxter said loan arrears have been trending down since the GFC, but that could change.

However, Baxter said with an increase in the number of missed payments and an average credit score drop of 3 points over the past month, the data suggested more arrears and defaults will occur in the year. next.

“Over the past decade, we’ve seen the proportion of consumers missing payments improve year after year after the GFC (global financial crisis) of late 2000,” he said.

“Now we’re starting to see signs that more and more borrowers are having difficulty meeting those payment obligations.”

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

He attributed the rise in missed payments to the rising cost of living created by the highest inflation in 30 years, which has taken a toll on finances.

Overall, the number of people missing payments was comparable to similar places around the world.

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

Baxter put it down to house prices and flat or declining home sales.

“While it’s still up year over year, I think in a few months we’ll start to see that come down because the housing market is currently in decline,” he said.

Late payments on home and auto loans continued to improve year over year, with only about 1% of home borrowers and about 4% of auto borrowers missing a payment.

With interest rates set to rise, Baxter expects the number of mortgage borrowers to miss their repayments will increase. But, he did not expect the arrears rate to reach the levels recorded in the aftermath of the GFC.

Arrears on buy now, pay later (BNPL) accounts have also increased sharply over the past two months.

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

BNPL, unlike credit cards, generally does not charge an interest rate and instead has fees for late payments – usually between $6 and $10.

He said amounts held were generally lower on BNPL loans, but arrears generally preceded loan repayment problems on larger items like houses and cars.

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

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

“I wouldn’t call it a second part of GFC.”

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