The financial hardship faced by millions of Australians is reaching critical levels, with rising interest rates and a cost-of-living crisis causing severe economic strain. The National Debt Helpline received an unprecedented 105,000 calls in September, with mortgage stress becoming the number one reason for seeking help. Financial crisis services across the country have reported record levels of need from individuals with mortgages, leading to concerns that Australia is approaching a “critical mass” when it comes to debt.
While current data from the Australian Banking Association shows low levels of borrowers falling behind on repayments, experts warn that this doesn’t capture the true scenario. Many Australians are resorting to short-term credit options such as Buy Now, Pay Later schemes and credit cards to cover basic expenses, while masking their underlying financial problems.
As the number of distress calls continues to rise, the real estate market is also feeling the effects. Although the number of homes listed for sale increased by 14.3% in September, distressed listings only rose by 1.3%. This suggests that forced sales are not being classified as such, and individuals are managing to avoid defaulting on their home loans.
Banks, recognizing the potential economic catastrophe that would arise if large numbers of people lost their homes, are currently bending over backwards to assist struggling borrowers. They are offering flexible options such as interest-free payment pauses and substantial payments to help individuals sell their homes. By avoiding distress sales, banks hope to maintain stable house prices, consumer confidence, and economic growth.
However, the situation remains dire. According to Roy Morgan, a record-high 30.2% of all mortgage holders are at risk of slipping into stress, and more than one-fifth of borrowers are considered “extremely at risk”. A survey by Finder found that one in seven Australians fear being forced to sell their homes due to the cost-of-living crisis. Many homeowners are already struggling to pay their mortgages, with 39% reporting difficulties in August. After months of rising costs, individuals have exhausted their options for cutting non-essential expenses.
The crisis is not limited to struggling homeowners. Charities across the country are being overwhelmed by the demand for assistance, with an increasing number of people in stable employment and dual-income families seeking help for the first time. The phenomenon of the “working poor” is becoming more prevalent, with parents sacrificing their own meals and foregoing heating or cooling to afford essentials for their families.
The situation is exacerbated by stagnant wages, which have failed to keep pace with inflation. As household incomes decline and the cost-of-living continues to rise, Australians are facing increasingly dire financial circumstances. Urgent action is needed to address the root causes of this crisis and provide support to those in need. Otherwise, the consequences could be devastating for the entire economy.