Boomers weighed down with debt

Higher income and often older (in fact, quite old) households are responsible for much of the net increase in housing finance over the last five to 10 years, analysis by the Reserve Bank of Australia shows.

The RBA produced the analysis in an article in its quarterly Bulletin, published yesterday. The analysis draws on data available from the Household, Income and Labour Dynamics in Australia Survey.

The HILDA data used is the first to capture trends subsequent to the GFC, though it's still more than a year old.

The data shows that households where the "reference person" was aged 50 or older accounted for 25 per cent of the value of home loans in 2009, up from 22 per cent in 2005 and 16 per cent in 2001.

Households in the 35 to 49 age bracket accounted for 48 per cent of the value of home loans in 2009, down by seven percentage points over the decade.

While the trend is not new,  it does highlight that a substantial proportion of the stock of home loans has to be repaid out of lump sums, if available on retirement, or from the sale of other assets (including the mortgaged homes). The trend toward "equity access" loans for retired people (often not repayable until their death) also explains the trend.

While households with debt are likely to be older, all households with housing debt are more likely to be striving to pay their debt back nowadays.

Consistent with other sources, the HILDA data shows that the proportion of households ahead of their loan repayment schedule leapt in 2008 and 2009, primarily as a result of caution arising from the GFC, and the steep falls in interest rates that released some cash flow for principal repayments.

The RBA also said that the proportion of people reporting they regularly use credit cards fell to around 52 per cent in 2009, from around 54 per cent in recent years. While the proportion of people saying they pay their credit card in full each month increased four percentage points to 64 per cent.