Australian risk leaders see rising credit stress: Experian report

Experian has released the findings of its fourth annual Risk Radar report, indicating a mixed landscape for Australian borrowers. The report combines insights from a survey of 30 key risk leaders with an analysis of the credit histories of millions of credit-active customers within Experian's Credit Bureau.

While overall rates of missed repayments remain relatively low, the data reveals ongoing pockets of credit stress, particularly among younger borrowers, individuals with multiple accounts, and those who opened accounts within the last five years. Car loan and personal loan accounts show the greatest signs of financial stress, with 42% of auto loan accounts and 38% of personal loan accounts missing one or more repayments.

Mortgage holders are also facing difficulties. The report notes a 40% increase in mortgage accounts missing repayments in 2024 compared to previous years. Particularly concerning is the trend of newer home loans falling behind faster, as mortgage accounts opened after 2019 are five times more likely to miss repayments than those opened between 2008 and 2015.

"Chief Risk Officers and key risk strategy decision-makers at Australian credit providers have been preparing for worst-case scenarios over the last 12 months to navigate their loan book through the tumultuous economic conditions," said Charlotte Rankin, Director of Client Advisory, Credit Services. "Despite not expecting economic risk factors to get worse, most risk leaders expect that borrowers will continue to falter at higher levels under the weight of current financial pressures."

The survey reveals that 69% of risk leaders predict an increase in credit stress, missed repayments, and delinquencies within the next year. The current financial climate has also led to tightened lending criteria. Forty-two percent of lenders have increased their lending stringency, and 81% have strengthened their risk assessments, compared to 57% in 2023.

The lending environment has become particularly challenging for younger borrowers. Seventy-seven percent of risk leaders believe it will be harder for younger adults to gain loan approvals and maintain repayments. "The data shows personal loans are the credit product with the greatest repayment volatility, with younger borrowers turning to unsecured personal loans at higher rates and then struggling to meet repayments," Rankin added. Generation Z has taken out 17% more personal loans, yet missed repayments have surged by 26% in 2024 when compared to April 2022.

Experian's data also highlights an increase in accounts marked with financial hardship indicators over the past 18 months. Personal loan accounts are most affected, followed by mortgages and auto loans. Yet despite heightened credit risks, many lenders can only detect customer financial stress after a missed repayment, a rise from 55% in 2023 to 69% this year.

However, it's not entirely bleak for prospective borrowers. The report notes that lenders are making strides in improving their application assessment speeds. Seventy-three percent of risk leaders report a reduction in the time it takes to assess and approve a credit application, and over half have streamlined their responsible lending processes. "By leveraging reliable transaction and alternative data sources, lenders can now assess applications faster, providing clearer outcomes for customers in record time," said Jordan Harris, Experian's Head of Innovation.