Household debt to assets ratio

IBISWorld expects the household debt to assets ratio to dip to an estimated 16.80% in 2024-25, representing a decrease of 0.2 percentage points from the previous year. While the RBA cut the cash rate by 25 basis points in February 2025, providing some much-needed relief to borrowers' mortgage repayments, household liabilities are expected to continue rising as elevated interest rates lift debt repayments, leading to higher household debt levels. Still, A faster increase in household assets is anticipated to drive the decline over the year. Robust international stock market performance and a projected uptick in the All Ordinaries Index have spurred shares and other equity values, contributing to a forecast jump in households' financial assets. This trend has also boosted household superannuation balances, as almost 60.0% of superannuation assets are invested in equities in 2024. Increases in the superannuation guarantee rate from 11.0% to 11.5% have exacerbated superannuation balances' solid growth. Growth in residential housing prices is also expected to increase the value of household assets. For instance, CoreLogic's Hedonic Home Value Index rose by 3.2% in the 12-month period ending April 2025. These factors are why debt to assets ratio is anticipated to dip in 2024-25.

The main factor affecting the debt to assets ratio over the past five years has been the gradual increase in the housing component of the ratio, underscoring the financial significance of residential property to the average household. Even the RBA's decision to increase interest rates from historical lows within the past two years failed to halt the growth in housing prices, leading to an increase in the value of household assets. Before July 2019, the Australian Prudential Regulation Authority (APRA) imposed stringent capital adequacy ratios for banks. However, in a shift of policy in July 2019, APRA reduced the minimum interest rate serviceability buffer for mortgages from 7 per cent to a level set by banks. Although the serviceability buffer was raised to 3 per cent towards the end of 2021, this adjustment remains a contributing factor to the increase in housing prices. Moreover, Australia's migration strategy has led to population growth, escalating the demand for housing and subsequently housing prices. Additionally, strong performance in equity markets, like the All Ordinaries Index and the NASDAQ index, has led to a rise in the value of financial assets, including shares and net equity in superannuation funds, further driving down the debt to assets ratio.

Over most of the past five years, record-low interest rates have encouraged households to accumulate more debt. However, the RBA's decision to hike interest rates since May 2022 to curb inflation has limited this uptake. Elevated interest rates have caused mortgage affordability to plunge as the average monthly mortgage repayments have outpaced the rise in average monthly incomes, offsetting further household debt to asset ratio declines. Even so, as the value of residential land, dwellings, and financial assets has risen at a faster rate, the household debt to assets ratio has decreased over the past five years. IBISWorld forecasts the household debt to assets ratio to decline at an average annual rate of 0.50 percentage points over the five years through 2024-25.