Higher Income Households More Likely Over-Indebted

Higher income households are more likely to be over-indebted than lower income ones, according to a recent household income and wealth survey conducted by the Australian Bureau of Statistics (ABS).

The 2015-16 household income and wealth survey results, which included household debt and over-indebtedness, considered a household to be over indebted if their debt was either three or more times their income, or 75 per cent or more of the value of their assets.

Based on the figures, CoreLogic research analyst Cameron Kusher said ABS data revealed 21.6% of households are over-indebted, 51.9% of households are not over-indebted and 26.4% of households have no debt.

According to the results, 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. The end result was that 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," Kusher said.

"The data shows 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.”

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 were likely to be those persons who are living debt free (45.9%), while single family households with a couple and dependent children (10.7%) were the least likely to be living debt free.

Households that were over-indebted spent 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.

Over-indebted households on average spent more than double ($150.54) each week on their mortgage repayments than households which were not over-indebted ($73.44).

“Households with no mortgage debt, most of which are retiree households, are least likely to be over-indebted," Kusher said.

"On the other hand, higher income households with a family that have outstanding mortgage debt are those 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.”