Household debt manageable for most

Ian Rogers
The typical debt burden of Australian households probably was not all that onerous, at least back in 2006, a detailed analysis of household income and spending shows.

The Melbourne Institute last week published the fourth volume of the annual survey of Household,
Income and Labour Dynamics in Australia, known as the HILDA survey. The survey analyses data collated over six waves from 2001 to 2006 and relies on detailed interviews with around seven thousand households.

According to the HILDA survey Australian households spent $5878 on median mortgage repayments in 2006 out of median household expenditure (on non-durables) of $45,100.

Growth in expenditure on mortgage repayments was the largest increase, by value, between 2005 and 2006, but only the second fastest growing expenditure item in a household budget (by 14 per cent) that year. (Spending on petrol increased 25 per cent).

The authors note that the increase in mortgage repayments is "likely to be primarily due to interest rate increases rather than increased mortgage debt".

The period of the survey, 2006, was a couple of years after the peak of Australia's home lending boom though rates of credit growth remained above average in a year now counted as being at the tail of the long boom.

The Melbourne Institute report shows that in 2006, 71.6 per cent of households owned, or were buying, their own home, while 42.9 per cent of households had a home loan. Thus 60 per cent of home owners had a mortgage in 2006, according to the HILDA survey, up from 56 per cent of households in 2002.

The survey also shows that 8.6 per cent of households had other property debt (such as an investment loan), 33.7 per cent had a credit card debt, 43.2 per cent had other personal debts and 6.3 per cent of households had business debts.

The mean value of a home loan was $78,700 in 2006, up from $55,200 in 2002. Given aggregate debt increased faster than aggregate property prices over that time, the inferred average loan to valuation ratio of the entire home loan portfolio of lenders, based on HILDA data, was thus 22.9 per cent and compared with an LVR across the sector of 20.3 per cent.

The survey shows that, in 2006, the average other property debt was $32,300, the average credit card debt was $1750, the average other personal debt was $17,600 and the average household business debt was $11,800.

The median value of a home loan was, unsurprisingly, highest in Sydney, at $250,000 in 2006. The ACT reported the next highest median home loan, at $237,000 followed by Perth, $187,000; Brisbane, $181,000 and Melbourne, $176,000.

The stress of paying the mortgage was only minor compared to paying other household bills. The report found that the most commonly reported financial problem was inability to pay utility bills on time, which was reported by 12 per cent of respondents in 2006. The percentage of households that reported trouble paying the mortgage, in 2006, at 5.7 per cent was slightly lower than in prior years.