Household income & wealth survey – almost three quarters of Australian households indebted

The results of a recent household income and wealth survey conducted by the Australian Bureau of Statistics (ABS) are not necessarily what you’d expect.

The results state that higher income households are more likely to be over-indebted than lower income ones and determined those households that are over-indebted and those that are not.

The 2015-16 household income and wealth survey results, which includes household debt and over-indebtedness considers a household to be over indebted if their debt is either three or more times their income, or 75% or more of the value of their assets.  

On these measures the ABS considers 21.6% of households to be over-indebted, 51.9% of households to be not over-indebted and 26.4% of households have no debt.

According to the results, households with the lowest disposable income are the least likely to be over-indebted while the fourth quintile households are most likely to be over-indebted.

The end results is that households with higher incomes are less likely to be debt free and are more likely to be over-indebted than lower income households.

Lower income households are more likely to be debtfree compared to higher income households which is reflective of many lower income households having paid off their debt.

The data shows that 94.6% of households which are either not overindebted (37.8%) or without debt (56.8%) have no persons in the labour force which is reflective of retirees or people that are in a position to choose not to work.

Households with mortgage debt are more likely to be overindebted than those households that either rent or own their home outright; only 3.5% of households that own without a mortgage are considered to be over-indebted compared to 47.0% of household with a mortgage and 9.1% of rental households.

Lone person households are likely to be those persons who are living debt free (45.9%), while single family households with a couple and dependent children (10.7%) are the least likely to be living debt free.

Interestingly, the data indicates that group households are among those least likely to be over-indebted (16.2%) as well as being amongst the least likely to be without debt (20.8%). 

This probably reflects the fact that university students and young professionals are most likely to live in group households while studying and prior to purchasing their own home.

The data also shows that households that are over-indebted spend 24.2% of all goods and services expenditure on housing costs compared to not over-indebted households spending 16.8% of their expenditure on housing costs.

The report shows that on average, over-indebted households spend more than double ($150.54) each week on their mortgage repayments than households which are not over-indebted ($73.44).

Households with no mortgage debt, most of which are retiree households, are least likely to be overindebted.

On the other hand, higher income households with a family that have outstanding mortgage debt are those most likely to be over-indebted.

While you could say that families of working age with higher incomes are better able to service their debt, interest rate hikes or reductions in the value of their assets could have a significant impact on their ability to service their debt.

About Cameron Kusher Cameron Kusher is Corelogic RP Data’s senior research analyst. Cameron has a thorough understanding of the fundamentals such as demographics, trends & economics. Visit www.corelogic.com.au