A new cohort of Australians experiencing post-pandemic financial stress actually fall outside the traditional definition of financial hardship.
Kevin James, general manager of advisory and solutions for Equifax, said a certain percentage of those experiencing this post-COVID financial stress had a good credit score. “The low risk population is part of that cohort,” Mr James said.
These people bought property during and shortly after the pandemic.
Another feature of this cohort is their age bracket. The Equifax data shows that 70% of the group who bought property during this period were under the age of 45.
“At pre-COVID-levels, it was 40% of that population,” Mr James said.
In short, there were more under-45-year-olds who had taken to investing in property during the pandemic. This group chose to enter the market when interest rates were at record lows. This increase in demand had an impact on prices, and recent interest rate rises have likely added to the subsequent financial stress.
What Equifax is seeing with this group is their mortgage balances going in the wrong direction and amortising upwards, and not down.
The other interesting part of this data is the state by state breakdown.
It shows that Victoria has a bigger proportion of this cohort than New South Wales. Victoria has more accounts that were opened up during this period that are now amortising upwards. So, more borrowers’ balances are increasing in Victoria than in New South Wales.
“There are more people in financial stress in Victoria,” Mr James said.
Mr James said COVID had changed the relationship between lenders and borrowers. Data and tools have become an important part of the equation.
Mr James said lenders should be using as much data as possible to identify customers and manage the relationship proactively.
The data, he said, can include Comprehensive Credit Reporting (CCR) which changes the type of consumer credit information that can be collected by credit bureaus and used by credit providers when making lending decisions. The data collected by CCR can include the dates accounts were opened and closed, types of credit accounts, 24 months of repayment history and credit limits.
“There is rich data in the industry,” Mr James said.
There is also scope for people to learn about financial literacy and types of assistance that might be available.
“COVID has changed the lender-borrower relationship,” James said. “It has brought them closer.”
He says this has also created the potential for greater financial literacy education and assistance.
“It has allowed the lender to develop processes to help those in need,” Mr James said.