The year of 2023 has been a turbulent ride for businesses, homeowners, and consumers alike, according to credit bureau Ilion, as the rising rates and the cost of living made its impact across the Australian economy.
However, some pockets have managed to dodge the deteriorating trends as Australians gears up for the year ahead.
illion’s head of modelling Barrett Hasseldine (pictured above) explained the major credit trends of 2023, the latest on mortgage stress heading into the new year, and what to expect in 2024.
Consumers have generally had a difficult time over 2023, with delinquencies and requests for hardship status increasing.
Home loans that are over 30 days in arrears have increased by 28% year-on-year in Australia – although this is substantially less than New Zealand (44%).
“Pockets have risk in more recent vintages written after mid-2022 are driving this increase,” said Hasseldine.
Home loans accounts in hardship has increased steadily throughout the year. However, around 75% of accounts of hardship are not yet behind in their payments.
The year of 2023 has been challenging for many industries, with a rise in late payment days and businesses becoming insolvent, according to illion. However, some industries have been thriving as the Australian economy gears up for the year ahead.
The construction industry has struggled in the second half of the year, according to illion, with many businesses struggling with late payments.
Installation services (electricians, plumbers) seem to be managing better while completion services (painting, tiling) have had the highest spikes in 2023.
Wholesale trade has outperformed others throughout the year, according to illion, likely because dealings are generally more business-to-business, which means less friction and less dealing with customers.
Textiles and timber/hardware have also performed well.
The industry is heavily impacted by seasonality, unexpected major events, and spending downturns, according to illion.
Deterioration began since cost-of-living pressures started to pile on in mid-2022 and all sub-sectors will be impacted for the foreseeable future.
The screws are tightening on Australian wallets, with illion's Q3 Credit Stress Barometer revealing a quarter marked by rising financial strain. Its data, encompassing mortgages, personal loans, and credit cards, paints a concerning picture of increased stress for many.
Sydney and Melbourne residents bear the brunt of higher housing costs, while middle Australians, particularly in outer suburbs, struggle with soaring rent, medical bills, and fuel prices.
“The rising cost of living appears to have weighed more heavily on households whose income growth has not kept pace with inflation, or where savings/assets have been insufficient to absorb this additional expense,” said Hasseldine.
The picture isn't entirely bleak. While overall default risk for mortgages stagnated in NSW and worsened in VIC and NT, a glimmer of hope appeared in latest quarterly data. Default risk on credit cards and personal loans dipped slightly, suggesting some Australians are adapting to their circumstances.
However, for some the situation remains precarious. Young first-time borrowers and over-40s with mortgages face increased financial strain, potentially redefining the "Australian dream of homeownership”, according to Hasseldine.
Additionally, the latest interest rate hike and potential future increases could tip the scales towards higher stress.
“All-in-all, July, August, and September 2023 have been another challenging quarter for Australians, and although economic circumstances have not improved in a material way, it’s encouraging to see the pressure not increasing for Australians with credit cards and personal loans,” Hasseldine said.
“This next quarter may be the one that confirms whether it’s light at the end of the tunnel, or the proverbial freight train.”
Here are the top three trends illion is expecting for 2024.
Those with multiple credit accounts will struggle more and will have prioritise payments, said illion.
While the slowdown in Australia has materialised in the past six months, spending is likely to remain high over 2024, according to illion.
Those industries impacted by consumer downturns, tight margins, and unexpected events, such as retail and services, are likely to continue to struggle with these issues.
