According to Equifax, the number of credit card accounts in 90+ days of arrears was up 19% month-on-month in September.

This is the highest delinquency rate since 2021, and Kevin James, General Manager of Advisory Solutions at Equifax (pictured below), says this might be a sign that mortgage delinquencies are set to follow.

"Personal loans and credit cards are normally the canary in the coalmine, and they actually tend to show signs of stress before the mortgage market," he told the Savings Tip Jar podcast.

Already, Equifax data suggests mortgage stress is on the rise, with the number of mortgage accounts that have been in arrears between 30-90 days 47% higher than this time last year.

Equifax also reported personal loan applications were 8.2% higher in the September quarter compared to the third quarter of last year, while there was a 6.9% increase in credit card applications.

Mr James said more demand for unsecure debt is a sign the strong savings buffers Australian households built up during the pandemic are being depleted.

"I think what we are seeing here is...people starting to use unsecure debt to try and balance the household balance sheet," he told the podcast.

Prior to the November cash rate hike, RBA governor Michele Bullock said those strong savings buffers have helped Australian households to absorb the increases to their mortgage repayments.

"There was about $300 billion in excess savings accumulated over the pandemic period, and that really hasn’t been run down yet," she said.

While plenty of Aussie households likely still have enough of an outstanding savings buffer to grudgingly absorb the most recent jump to their repayments, Mr James said those who took on mortgages more recently might be particularly at risk.

"From a delinquency point of view, what we are seeing is there's a lot more stress on those who purchased homes over the past 24 months rather than those who had homes before," he told the podcast.

Equifax_Kevin James1.jpg

Unsecure debt not the answer

As demand for unsecure debt like personal loans and credit cards rose in the third quarter, there was also a 5% reduction in new mortgage applications, which Mr James called a "normalisation" after home loan applications climbed while interest rates were at record lows.

"When [Australians] are applying for mortgages, they tend to dispose of debt they don't need to gain that affordability," he told the podcast.

"I think now they're starting to come back into that market and normalise a bit more."

However Mr James warns it isn't a viable long term solution.

"Using unsecured credit to make ends meet...can create bad debt cycles if [borrowers] can't keep up with repayments," he said.

Instead, he recommends Australians who are having debt problems to have a chat with their lender.

"There are other options to come up with and solutions, and I think those have broadened strongly in the past 18 months," he said.

All Australian lending institutions are required to have a hardship team, who can be contacted by borrowers who are struggling.

Read more: What happens if you default on your mortgage?

Picture by Alice Pasqual on Unsplash