Australian Borrowers Turn to Refinancing Amidst Rising Mortgage Arrears

According to Equifax's Q1 2025 Consumer Credit Report, unsecured credit demand rose by 5.5% year-on-year, while secured credit, including mortgages and auto loans, increased by 4.3%. A significant portion of this growth is attributed to a surge in mortgage refinancing activities.

In the first quarter of 2025, mortgage demand climbed by 5.2% compared to the same period in 2024. Notably, external refinancing grew by 11% year-on-year, marking the first positive Q1 result since 2023. In March 2025 alone, external refinancing accounted for over 20% of all mortgage inquiries. This proactive behavior among consumers reflects their anticipation of potential interest rate cuts and a desire to secure more favorable loan conditions.

Investor borrowers have been at the forefront of this refinancing wave, representing up to 80% of total refinance inquiries in March 2025, a significant increase from around 60% in March 2024. This indicates that investors are now more than twice as likely to refinance compared to owner-occupiers.

Despite the uptick in refinancing, larger loans are exhibiting signs of financial strain. Equifax reports a sharp rise in the dollar value of mortgages over 90 days past due, primarily driven by high-value loans exceeding $1 million. For the first time on record, these larger mortgages now have the highest arrears rates across all loan size segments, with arrears on big-ticket loans growing four times faster than other segments over the past two years.

Borrowers aged 31-45 are experiencing the fastest growth in arrears, highlighting the pressure on younger mortgage holders with substantial debt exposure. Although the number of accounts in 90+ day arrears has remained relatively stable, the total limits in arrears rose to 9.2% in Q1 2025, indicating that distressed borrowers now hold larger average debts than a year ago.

Additionally, Australians are feeling the financial aftermath of the holiday season. Credit card arrears jumped by 19.3% year-on-year, with both early- and late-stage delinquencies on the rise. The average limit for accounts over 90 days past due increased to $7,100 in Q1 2025, up from $6,900 a year earlier. While personal loan arrears rates improved slightly due to portfolio expansion, the total limits in arrears surged by 18.7%, with the average delinquent loan at $12,000-a 10% year-on-year increase.

In light of these developments, it's crucial for borrowers to assess their financial situations carefully. Exploring debt consolidation options can be a strategic move to manage multiple debts more effectively, potentially leading to lower overall interest rates and simplified debt management. However, it's essential to consult with financial advisors to ensure that refinancing or consolidating debts aligns with individual financial goals and circumstances.