A new report from the Consumer Action Law Centre has provided a window into the struggles facing a growing portion of Australians, as the cost of living crisis takes hold.

Financial counsellors answering calls to the National Debt Helpline report more homeowners are cutting back on essentials and turning to buy now, pay later (BNPL) services or payday loans in order to meet their mortgage repayments.

“What we’re seeing, in the case of our clients, is that [BNPL] is not being used for discretionary spending,” Consumer Action Law Centre CEO Stephanie Tonkin told Savings.com.au.

“It is quite specifically being used for essentials, to afford things like medical expenses, food, and petrol.

“We’re seeing it used as a way to increase the income of families as they struggle to repay a mortgage, their rent, and just to get by.”

Many are even considering selling their properties in a bid to stem the financial bleeding. 

Mortgages in arrears was the most common issue people reached out to the financial helpline for help with last year.

Credit card debt and late or missed rental repayments were also made the top three reasons.

“[People being unable to meet home loan repayments] is almost appearing structural now,” Ms Tonkin said.

“Previously, we would see people experience a significant life event that led to their hardship.

“Now, we're seeing they simply just don't have enough money to cover their costs.”

It comes after the Reserve Bank of Australia hiked the cash rate from a record low 0.1% in 2022 to 4.35% in late 2023. 

The rising cash rate has driven up interest rates charged to home loan borrowers significantly.

The average interest rate on a new owner-occupier, variable rate home loan climbed from 2.5% to 6.2% over the two years to January 2024, according to RBA figures. 

That would have seen the monthly repayments on a $500,000, 30-year home loan increase by more than $1,000, jumping from $1,975 to $3,062, as per Savings.com.au’s Mortgage Repayment Calculator.

Indeed, ABS data reveals mortgage interest costs bore the greatest impact on many Aussie budgets in the year to December.

It helped drive the cost of living up 6.9% for employees, significantly higher than the increase in annual inflation more broadly – 4.1%. 

An increasing number of borrowers, however, aren’t just in mortgage stress. 

The number of borrowers actually falling behind on their loan repayments climbed by around 50% over the year to the December quarter, according to APRA data.

The portion of borrowers behind on their repayments by between 30 and 89 days rose to 0.60% of loans last quarter, which is still below pre-covid averages - just.

Simultaneously, on the other side of the apparent wealth gap, the amount of funds kept in home loan offset accounts compared to total credit limits reached a record high.

Aussies with seemingly decent wages increasingly seeking help

The helpline saw a 25% increase in the number of callers last year, all of whom were struggling to afford essentials such as food, energy, and medicine.

“We’re now seeing single-, sometimes dual-income households with mortgages [struggling with] interest rate rises," Ms Tonkin said.

"They’re in real financial difficulty too.”

The number of people earning seemingly reasonable wages – between $2,001 and $3,500 a fortnight – reaching out to the National Debt Helpline more than doubled year-on-year in 2023. 

Meanwhile, the number of callers receiving income from paid employment reaching out jumped by over 60%.  

Ms Tonkin fronted the Senate Select Committee hearing into supermarket prices yesterday alongside Consumer Action Law Centre acting director of financial counselling practice Claire Tacon.

New BNPL regulation on the table 

Draft legislation aiming to treat BNPL as a credit product, like credit cards or personal loans, was announced by Treasury this week.

It will require the likes of Afterpay, Klarna, and Zip to hold a credit licence and assess Australians’ ability to repay their owings before they can use the product. 

The changes have been welcomed by Arca, formerly the Australian Retail Credit Association. 

“BNPL has been a positive innovation in the credit market, and Arca sees the moves to regulate the sector as important to the evolution of this product,” Arca CEO Elsa Markula said.

The changes are said to mean BNPL providers will be able to assess a users’ history of meeting or missing repayments on other credit products. 

“Getting access to and reporting information about customer accounts and payments will mean BNPL providers can make better credit decisions,” she said.

“And for BNPL customers, it is a great opportunity to demonstrate to other lenders positive credit behaviours.”

However, Ms Tonkin is concerned that the legislation proposed doesn’t go far enough to combat the financial harm that BNPL products can cause. 

Particularly, as many people present to the helpline with multiple owings spread across multiple BNPL providers. 

She also noted that some other companies providing short-term credit products appear to deliberately operate in regulatory blindspots.

“These businesses – not BNPL but rather low-doc, high credit, and short-term credit businesses – are innovative and they design their services to exploit loopholes and protection from credit legislation,” she said.

“While we may have brought BNPL into the credit regime … you regulate one, and a business innovates its service model to exploit a different exemption in the credit legislation.” 

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