Aussies tapping more credit as arrears value swells

The significant increase in mortgage applications was at a level not seen in five years, Equifax chief solution officer Kevin James said.

"It's likely to have been supercharged by the government's expanded five per cent First Home Buyer Deposit Scheme that became available in October 2025, and buyers acting on the impression that rates had peaked in late 2025, and therefore rushed to lock in deals before the year's end.

"If this was their driver, they may have secured the last of the lower rates for a while, following the 25-basis point increase confirmed this February."

While the number of Australians falling behind on the home payments remained unchanged, the dollar value of arrears grew 6.8 per cent on the same 2024 quarter.

The average amount owed on a loan at the late stage of delinquency jumped more than eight per cent to $403,000, correlating with higher house prices, potentially forcing buyers into larger loans with steep repayment penalties.

"This pattern of older Australians (aged 66 and over) carrying this type of debt into retirement is something to keep an eye on, particularly if the rate environment continues to increase," Mr James said.

In other credit segments, unsecured credit demand jumped 5.9 per cent, personal loan applications increased 8.9 per cent, while vehicle and auto loans fell 5.4 per cent compared with the 2024 quarter.

Growth in mortgage demand was driven by generation X (46- to 55-year-olds), while the lift in credit card demand was driven by generation Z (18 to 30-year-olds), with a 23.2 surge in applications.

"It's the highest rate of growth we've seen among this cohort for credit cards in three years," Mr James said.

The uptick was likely underpinned by aggressive incentive campaigns pushed by card providers in the recent quarter.

The younger borrowers subsequently helped drive a 28.8 per cent surge in credit card arrears.

But lenders appeared to be tightening their belt as a result, dropping limits for new credit cards by an average 8.3 per cent year-on-year and cutting personal loan limits by 3.9 per cent.

"This proactive reduction appears to represent responsible lending in action, as banks prioritise stability over high-risk growth," Mr James said.

In terms of personal loans, slightly fewer people were falling into trouble, with delinquency rates easing 0.08 per cent, but those who did were falling deeper.

"While the number of people falling behind on personal loans has actually dropped, the amount of money they owe has significantly increased," Mr James said.

The Reserve Bank of Australia in February lifted interest rates for the first time in two years, setting the scene for lenders to increase their offerings in line.

The bank is expected to raise rates again as early as May.