Borrowers 28 months ahead on loans

Household finances are in good shape, according to the Australian Bankers’ Association.

But households do continue to borrow, and also continue to invest and to save.

The value of household assets is much greater than the value of household debt so that on average households have a positive net worth.

Every $1 of household debt is matched by almost $6 of assets.

Dwellings are the single largest component of household wealth at $5.1 trillion, with superannuation at $1.9 trillion.

The ratio of housing debt-to-housing assets is around 28 per cent, with every $1 of debt being matched by over $3 in house value.

Mortgage customers are some 28 months ahead of their home loan repayments despite taking on record levels of debt.

Australians owe $1.46 trillion in household debt but the historically low interest rate period has allowed borrowers to ge ahead on their mortgages paying into their principal at a faster pace.

About $959 billion is owed on owner-occupied housing and $499 billion on investor housing, according to

ABA's report shows that consumers increase their credit card use at peak periods such as Christmas but repay strongly in January.

Over December 2014 to January 2015 consumers spent $50 billion but repaid $52.3 billion.

The report on household finances in Australia looks at the value of total borrowings by households in relation to income and assets as well as the use of credit cards and available personal credit.

ABA Executive Director – Industry Policy, Tony Pearson, said: “The trends that we are seeing across a range of household financial measures show that households are equipped to cope with increased borrowings. They are building resilience into their finances by increasing mortgage buffers and reducing the amount of interest paid on their credit card balance.

“As might be expected in a low interest rate environment, households are increasing their borrowings for housing. But the growth rate is much slower today than it was prior to the global financial crisis.

“Households continue to save and are managing their finances well. While households are now increasing their borrowings faster than income, this increase in borrowings is being more than matched by an increase in the value of household assets. Every dollar of household debt is matched by almost $6 of assets,” he said.

Other key figures from the report include:

• The value of housing related borrowings is $1.5 trillion, an increase of 7.3% on last year. 
• Total borrowings by households other than for housing is $142 billion, with credit card borrowings making up $51 billion and other forms of personal loans $91 billion.
• Household debt as a proportion of household assets is at the lowest level in almost seven years.
• The average household is more than two years ahead on their mortgage repayments.
• The household savings ratio is high at 9% of household disposable income.
• The balance accruing interest for credit card customers has been in decline for the past three years. 
• Households are using less of their available personal credit facilities with this figure falling since 2005.

“Households seem to be preparing for a rainy day, they are getting their finances into a resilient state and building in increasing financial buffers,’’ Tony Pearson, ABA director of industry policy, said.

“They are being very responsible in their use of debts and being very responsible in handling their household finances, it does indicate the Australian household is very canny when it manages its budget.”

He added that savvy home loan customers are parking extra cash into mortgage offset or redraw accounts — to help bring interest costs down — or they are being diligent and are paying down their loan directly.