debt-to-asset ratio, where over-indebted households had debt equal to 75% or more of the value of assets.įor additional data on over-indebted households, please refer to data cube 26.debt-to-income ratio, where over-indebted households had debt three or more times their annual disposable income and.This article examines the debt level and profile of Australian households using two measures based on definitions used by the Organisation for Economic Co-operation and Development (OECD): However, high levels of debt, when considered against the value of current household income and assets, indicates vulnerability in the event of an economic shock, such as increases to interest rates, the loss of a job, illness or injury, a change in family circumstances or a drop in asset prices.

Over recent years, rising property prices, declining interest rates and easier access to consumer credit has seen Australian households grow more comfortable with debt. Debt can assist in the accumulation of wealth, which is an important economic resource for supporting consumption during times of reduced income. However, debt can be advantageous, allowing people to smooth expenditure over a life-time or enabling purchases that are not possible using income alone. Having a debt is a reality for most Australian households. Lack of liquid assets may place over-indebted households at risk of defaulting on their loans if their incomes are not sufficient to meet repayments. Liquid assets are assets which can be easily converted to cash and include bank accounts, shares, own businesses, and superannuation (age permitting).

Most over-indebted households (77%) lacked sufficient ‘liquid‘ assets to cover a quarter of the value of their debts.

Average home loans for over-indebted households were over four times the size of home loans held by other households carrying debt ($286,400 compared to $59,500), and other property loans were over 11 times the size on average ($219,800 compared to $18,500).

Over-indebted Sydney households who held property debt owed $269,000 more on average than over-indebted Melbourne households who held property debt.

Sydney and Melbourne had the highest number of over-indebted household at 407,000 and 419,600 households, respectively.

One quarter of the households in the top income quintile were over-indebted compared to one-in-six (16%) low income households (in the bottom 20%).

High income households were also more likely to be over-indebted.

Of those households with a property debt, 62% of 25-34 year olds and 51% of 35-44 year olds were over-indebted.

Households with a reference person aged between 25-34 years (33%) and 35-44 years (34%) are among those most likely to be over-indebted based on age group.

Owners with a mortgage were the most likely households to be over-indebted (47%) based on tenure type.

Debt growth has outpaced that of incomes and assets during the same period, helping to drive the proportion of households who are over-indebted up from 21% in 2003-04 to 29% in 2015-16.

In 2015-16, based on the ratio of debt to either income or assets, around three-in-ten households (29%) were classified as ‘over-indebted’.HOUSEHOLD DEBT AND OVER-INDEBTEDNESS IN AUSTRALIA

Annual income vs liquid net worth