Household debt soars

AUSTRALIA’S household debt is poised to burst through $2.5 trillion following a change in the treatment of home loans taken out by self-managed superannuation funds.

And the nation’s household debt-to-income ratio has surged to 200 per cent, official figures reveal, hitting the bleak milestone for the first time.

It means that on average, Australian consumers now owe twice the amount that they bring in every year from wages, welfare and other sources of income, even after debtfree households are factored into the mix.

UBS analyst Jonathan Mott said the ratio was likely to keep climbing “in the near term” and peak at about 205 per cent.

Total household debt now stands at a record $2.47 trillion, or $99,587 for every woman, man and child.

The records have tumbled following a change in the classification of mortgage debt owed by self-managed super funds.

Since late last year, the Australian Bureau of Statistics has included those borrowings in the nation’s household debt figure.

That has had the effect of lifting the ratio of Australian household debt to disposable income – an after-tax figure – by 6 percentage points, from 194 per cent.

Mr Mott said it came just as the “housing cycle has turned”.

“Household debt in Australia is extremely elevated and it was concerning to see the Australian Bureau of Statistics upwardly revise debt levels,” he said.

“Now the ratio of household debt to disposable income has jumped to 200 per cent – from 194 per cent – one of the highest in the world.”

Despite the fact the property market was now cooling, the debt-to-income ratio was likely to keep rising, Mr Mott said in a report for investors.

He noted wage growth was “subdued” and said UBS accordingly expected household leverage to keep rising for another one to two years.

“As a result we expect total household debt to disposable income to peak around 205 per cent,” he said.

The amount borrowed by self-managed super funds to buy into the property market has exploded almost tenfold to more than $20 billion since 2012 amid a surge in house prices.

But house price growth is now slowing, and in some markets, prices are sliding, according to research house CoreLogic.

Sydney prices have dipped in recent months and Melbourne house prices are also widely expected to have peaked.

“Following an extended period of strong house price growth pushing prices to extremely elevated levels, home prices in Australia are now beginning to correct,” Mr Mott said.

Latest lending statistics from the ABS show the share of loans going to investors has fallen from a peak of 44 per cent in June 2015 to 36 per cent now. “Investor lending has ebbed and flowed over the past 15 years and now makes up a more ‘normal’ proportion of lending,” Shaw and Partners chief investment officer Martin Crabb said.