The share of debt-free households in Australia has plunged to a nine-year low, new figures show, amid signs people are borrowing heavily to keep pace with the rapid growth in house prices.
According to a Melbourne Institute survey, only 36.2 per cent of households held no debt in the September quarter, the lowest since the series began in 2001.
With the ratio of household debt to disposable income at record levels, the figures have raised concerns that a growing number of consumers are living beyond their means.
Amid a debate over whether the country is in the grip of a property bubble, the survey also found the proportion of people who own their home outright had reached a five-year low of 37.5 per cent.
A research fellow at the Melbourne Institute, Edda Claus, said the high debt was ”worrying”, and households’ financial position had worsened in the quarter.
”The big danger would be if people lost their jobs. If they’re very highly indebted then things can go very bad very fast,” she said.
While a sharp fall in employment looks unlikely, separate figures from the Reserve Bank show the ratio of household debt to disposable income hit 159 per cent in the June quarter, the highest on record. The main reason is higher mortgage debt.
With economists tipping about 1.25 percentage points in interest rate rises by the end of next year, the most highly geared households could be vulnerable to a sharp increase in their repayments.
A senior economist at JP Morgan, Helen Kevans, said it appeared households were ”releveraging” to keep up with rising house prices.
”During the crisis there was little evidence that households actually deleveraged. Because we’ve taken on so much debt over the last few years then households are becoming much more sensitive to changes in interest rates,” she said.
Despite the increased debt concerns, Dr Claus said the strong labour market meant household debt was a potential problem rather than a pressing one.
”As long as people keep their jobs, it should be OK,” she said.
The latest prediction of an imminent interest rate rise came yesterday from CommBank’s chief economist, Michael Blythe.
He forecast a 0.25 percentage point move next month. Markets are betting there is a 60 per cent chance of such a move.