A Look at Over-Indebted Households

The Household Income and Wealth Survey has determined those households that are over-indebted and those that are not.  The results are not necessarily what you’d expect with higher income households more likely to be over-indebted than lower income ones.

Last week the Australian Bureau of Statistics (ABS) published the 2015-16 results of their household income and wealth survey.  In the survey results they included a section on household debt and over-indebtedness.  The ABS consider a household to be over indebted if their debt is either three or more times their income, or 75% or more of the value of their assets.  Based on these measures the ABS considers 21.6% of households to be over-indebted, 51.9% of households to be not over-indebted and 26.4% of households have no debt.


The first table shows that households with the lowest disposable income are the least likely to be over-indebted while the fourth quintile households are most likely to be over-indebted.  Based on these findings, households with higher incomes are less likely to be debt free and are more likely to be over-indebted than lower income households.  


Lower income households are more likely to be debt-free compared to higher income households which is reflective of many lower income households having paid off their debt.  The data reports that 94.6% of households which are either not over-indebted (37.8%) or without debt (56.8%) have no persons in the labour force which is reflective of retirees or people that are in a position to choose not to work.

The data also indicates that households with mortgage debt are more likely to be over-indebted than those households that either rent or own their home outright. Only 3.5% of households that own without a mortgage are considered to be over-indebted compared to 47.0% of household with a mortgage and 9.1% of rental households.  


Lone person households are the most likely to be living debt free (45.9%) while single family households with a couple and dependent children (10.7%) are the least likely to be living debt free.  Interestingly the data indicates that group households are amongst the least likely to be over-indebted (16.2%) as well as being amongst the least likely to be without debt (20.8%).  This probably reflects the fact that university students and young professionals are most likely to live in group households while studying and prior to purchasing their own home.


The data also shows that households that are over-indebted spend 24.2% of all goods and services expenditure on housing costs compared to not over-indebted households spending 16.8% of their expenditure on housing costs.  The report shows that on average, over-indebted households spend more than double ($150.54) each week on their mortgage repayments than households which are not over-indebted ($73.44).  

Whether you agree with the analysis used to determine whether households are over-indebted or not it is interesting to look at the trends.  Households with no mortgage debt, most of which are retiree households, are least likely to be over-indebted.  On the other hand, higher income households with a family that have outstanding mortgage debt are most likely to be over-indebted.  While you could say that families of working age with higher incomes are better able to service their debt, interest rate hikes or reductions in the value of their assets could have a significant impact on their ability to service their debt.