Data INSIGHTSanalysis 1 July 2019 to 1 August 2022

Indices of overdue mortgages and overdue unsecured credit (credit cards and personal loans) for the period from 1 July 2019 to 1 August 2022 are presented below.

Index of overdue mortgage accounts

Figure 1 shows the index of overdue mortgage accounts based on aggregate monthly account level mortgage data reported from all mortgage providers from 1 July 2019 to 1 August 2022. The index is constructed from the national share of mortgage accounts with payments past 30 days due over the number of open accounts. In the last months of 2019, prior to the first of COVID-19 pandemic lockdowns in Australia, around 1% of mortgage accounts were overdue. This is likely be the benchmark overdue rate over time.

Figure 1 shows the sharp fall in the index of overdue mortgages from a high 0.98% in April 2020 to a low of 0.62% in August 2022. Temporary loan deferrals (a proxy for financial hardship arrangements) during the pandemic, sharply reduced the level of overdue mortgages. According to APRA data, almost 10% of mortgage account holders had taken up temporary loan deferrals by July 2020.1 Generally increasing property prices and low interest rates at the time also saw a spike in home loan refinancing.

The index data shown in Figure 1 ends in August 2022 and it did not yet show an increase in the level of overdue mortgage accounts. The end of regulatory support for temporary loan deferrals, consumer price rises and nine interest rate hikes since May 2022 will likely lead to increases in subsequent quarters. The decreased levels of overdue credit surrounding the pandemic has also coincided with households increasing their ‘buffers’ against mortgage payment difficulties. As such, some households took the opportunity to increase balances in offset accounts or make extra repayments, and so the consequences of rising interest rates may not be felt in the short-term.

Figure 2 compares indexes of overdue mortgage accounts by three urban SA4 areas in NSW – Sydney’s Southwest, the regional area of Newcastle and Lake Macquarie and the Ryde area in Sydney. The comparison shows structural

“Across these three areas, Sydney’s Southwest had the highest level of overdue accounts prior to the pandemic (1.22 %) and the sharpest fall in overdue accounts during the pandemic, to a low of (0.66%).” differences in the level of overdue credit between these three SA4 areas, as well as co-movements in arrears across areas.

Across these three areas, Sydney’s Southwest had the highest level of overdue accounts prior to the pandemic (1.22 %) and the sharpest fall in overdue accounts during the pandemic, to a low of (0.66%). The Ryde area had the lowest level of overdue mortgage accounts before the pandemic (0.46), during and after the pandemic (0.4%) of accounts.

The level of overdue accounts in Newcastle and Lake Macquarie changed in a similar pattern to arrears in Southwest Sydney but at lower level of arrears overall – 0.90% prior to the pandemic, falling to a low of 0.51% during 2020 and trending down to 0.48 % in August 2022.

Across all areas, those SA4 areas with highest arrears rates prior to pandemic had the largest fall in arrears during the pandemic. Temporary loan deferrals allowed most mortgage account holders who faced pandemic induced shocks to reduce or avoid arrears, while also providing relief for previously vulnerable borrowers. It is likely that these regions will see a deterioration greater than the national average as the impact of COVID-support ends, especially for consumers with high debt-to-income ratios, or in more insecure labour markets.

Figure 3 shows a map the percentage point share of overdue mortgage accounts by SA4 areas in Greater Sydney in the month of August 2022. There are clear structural differences in the level of overdue accounts between areas. The level of arrears for instance in Sydney’s Northern Beaches, Northern Sydney and Hornsby, and Sutherland are between 0.32% and 0.36%. This was about half the level of arrears in Sydney’s City and Inner South (0.6.%), Inner, South West, Parramatta and in Sydney’s South West (0.7%) and Outer South West.

Index of overdue credit card accounts

Figure 4 is a national index of overdue credit card accounts. The credit card account data includes reported data on credit cards and personal loans from all reporting credit providers, including the big four banks, regional banks, mutuals, international banks, fintechs, alternative lenders, and large non-bank lenders.

The index shows the percentage point share of overdue (30+dpd) credit card accounts over the total number of open credit card accounts. The national index of overdue credit card accounts showed a rise in overdue accounts from 1.06% in September 2019 to 1.35% in April 2020. The increase in overdue credit card accounts in the months prior to the impact of COVID-19 was likely driven by a combination of a rise in unemployment, a slowing business cycle, seasonal demand for credit card debt.

However, the percentage point share of overdue credit card accounts fell by over half from its peak of 1.35% overdue in April 2020 to a low of 0.64% by September 2020. Borrowers were able to pay down their credit card debt because the extended COVID-19 lockdowns and the uptake of temporary loan deferrals on mortgages accounts left many borrowers with surplus income, which allowed consumers to reduce credit card debt.

The index of overdue credit card accounts rose by about one third towards the end of 2020, before falling and rising again – while remaining just over half the level it was prior to pandemic. There were 0.78% of credit card accounts in arrears (30+dpd) in August 2022, prior to full impact of recent price rises on household balance sheets.

The lower level of overdue credit card accounts and the reduced number of credit card accounts overall, points to reduced levels of consumer credit card debt compared to the period prior to the pandemic, although this may be changing in early 2023. The impact of the Buy-Now, Pay-Later wave has reduced consumer demand for credit cards, and it is possible that overdue credit has shifted accordingly.

Figure 5 compares indexes of overdue credit card accounts by three SA4 areas in Victoria – Melbourne West, the regional area of Shepparton and Melbourne’s Inner East. Melbourne West had the highest level of overdue accounts prior to the pandemic (1.6% in July 2019), peaking at 1.85% of accounts in April 2020 at the start of the first lockdown. Melbourne’s West also had the sharpest fall in overdue credit card account levels – down to 0.89% of accounts in September 2020 after several months of lockdown.

As of August 2022, 0.96% of credit card accounts in Melbourne’s West were overdue (30+dpd – about half the level of arrears before the pandemic. Melbourne’s Inner East had the lowest level of overdue credit card accounts before (0.78%), prior to the first lockdown (0.86%) and after the pandemic (0.48%) in August 2022.

The level of overdue accounts in the regional areas of Shepparton showed a similar pattern to Melbourne’s West but with a lower level of arrears – 1.24% in April 2022 and falling to 0.61% in August 2020.

In general, the areas with the highest levels of overdue credit card accounts prior to the pandemic were more responsive to the support measures put in place during the pandemic and are likely to be more sensitive to new shocks going forward.

Figure 6 below shows structural differences in overdue credit cards accounts as of August 2022, by Melbourne and adjacent regional Victorian SA4 areas. Arrears (30+dpd) on credit card accounts in Melbourne’s North West (0.96%), and Melbourne’s West (0.99%), were around double the arrears rates in Melbourne’s Inner East (0.48%) and Inner South (0.54%).

Index of overdue personal loan accounts

Figure 7 shows an index of overdue personal loans (30+dpd) from July 2019 to August 2022. The index shows a similar pattern to mortgage and credit card products prior to and during the pandemic, as well as similar geographical dispersion in overdue accounts. Unlike overdue mortgage and credit card accounts, however, whose arrear rates did not increase over the first half of 2022, the index of overdue personal loan accounts clearly rose consistently over the same period and reached 3.3% in August 2022. This suggests increased personal loan account arrears may have been an early indicator of increased financial stress among unsecured borrowers in 2022.2

Figure 8 shows the index of overdue personal loan accounts by selected SA4 areas in Perth, Western Australia. Again, the index shows slight structural differences in arrears between comparable SA4 areas, as well as a similar pattern of co-movement across areas.

Figure 9 shows the index of overdue personal loans accounts across Perth and adjacent regional areas as of August 2022. The rate of overdue personal loan account in Perth’s Inner Perth (1.1%) was less than half of those in Perth’s Northwest (2.3%) and South West (2.7%) and a third of Perth’s North East (3.4%) and South East (3.1%).

Figure

Adelaide regional areas as of August 2022. Arrears rates (30+dpd) on personal loan accounts in Adelaide North (3.6%) were over two and half times the arrears rates in Adelaide Central and Hills (1.4%) and double those in Adelaide South (1.9%).

Index of deferred mortgages

Figure 11 shows an index of deferred mortgages between 2019 Q3 and 2022 Q1. According to the index, mortgage deferrals rose from a low of 0.9% pre-pandemic to a peak of over 7.1% of accounts in the third quarter of 2020, before falling back to a low of 1.6% accounts in Q2 2021. According to data reported to APRA over the same period 10% of mortgage account holders deferred their loans between March and July 2020 – similar in scale to the estimated deferrals shown in Figure 11.

As of the Q1 2022 the index of mortgages deferrals was nearly double those after COVID (1.6%) as before (0.9%). This trend was evident across all geographical areas.

Figure 11 also shows strong regional variation in temporary loan deferrals, again due to economic sensitivity to the pandemic shocks. The Gold Coast in QLD had the highest level of estimated mortgage deferrals – reaching 11.3% in Q3 2020 – almost 60 percent higher than the national average due to the Gold Coast’s reliance on tourism. By contrast, the national index of mortgage deferrals peaked at 7.1% of accounts. West and North West Tasmania was the SA area with the lowest rate of deferrals (4.2%).

The Gold Coast had the highest percentage point share of mortgage deferrals (11.3% in Q3 2020) of anywhere in Queensland. SA4 areas that rely heavily on tourism and retail employment, such as Cairns and the Sunshine Coast were similarly affected with the highest set of deferral rates in the Queensland. Mortgage deferrals peaked at 9.45% in Logan-Beaudesert and reached 7.14% in Brisbane North in Q3 2020. Each of these areas had a higher share of accounts in deferral in 2021 than they did before the pandemic.

FOOTNOTES:

1 The banking regulator APRA allowed banks to grant temporal loan deferrals from March 2020 to distressed mortgage and SME borrowers in response to the COVID-19 pandemic. APRA waived the requirement on banks that they report these temporary loan deferrals as impaired loans.

2 Previous research from illion and the University of Sydney Business School indicated that consumers who hold both a personal loan and a credit card were more likely to default on their credit card first. These findings are at an aggregate level, rather than the individual level, and do not consider the sample of only credit card and personal loan holders.