Household debt up

Credit card debt hit $41 billion in July and household interest payments have hit a record high of 11.9% of total disposable income, according to new figures from the RBA.

But the average balance on a credit card dipped slightly to $3002. And the annual rate of growth has slowed to 6.2%, its slowest rate in more than a year.

The figures, which pre-date last month’s rate rise and the sub-prime mortgage crisis in the US, also showed Australians owed 161.3% of their annual disposable income in the three months to 30 June, the first time that ratio has crossed 160%.

But while debt to income increased in the June quarter, the ratio of debt to wealth — household assets — remained steady at 26.3%. It was the first time debt had not climbed as a proportion of assets since June last year, and only the second time since 2004.

Paul Braddick, head of ANZ Head of financial system analysis, says the figures are nothing to worry about. “We think that lot of the analysis of debt issue has been alarmist. Even though debt is at record levels, when you look beneath the aggregate figure the situation is not a nearly as dire as some say. The vast bulk of households have low or no debt positions.”

He says a closer look at the data suggests that the increase in debt has been by households that can readily afford that debt. While rising house prices and interest rates are difficult for first home buyers, there is no systemic problem with credit quality.

“Foreclosures and loan delinquencies have been due to changing credit criteria. The US sub-prime crisis will bring home to lenders the need to lend responsibly,” Braddick says.

Steve Keen, associate professor in economics and finance at the University of Western Sydney, who has previously predicted Australians’ debt could lead to a recession, said in a note that lending to households “slowed substantially” for the first time since early 2004 and personal debt fell, reported The Age.

“While it is obviously too early to tell, this may be the first signs of the long overdue slowdown in household borrowing,” he said.