The Young Borrowers Who Are Most At Risk Of Default

Almost all borrowers, regardless of age, have a risk of defaulting on their loans. However, there are a few groups of borrowers who are more at risk than others. One such group is young borrowers. This article will explore the reasons why young borrowers are more likely to default on their  loans and what can be done to prevent it.

According to new research, the risk of credit default rises as inflation and interest rates rise, especially among those who refinanced recently, particularly if they are under 35. According to the latest Mortgage Nation 2 report by credit bureau illion, individuals at high danger include recent borrowers in western Sydney, South-western Sydney, outer Brisbane, Perth, North Adelaide and parts of regional Australia.

If consumers are made to sell their homes at a price below the 2019 average, they will lose significant equity if they have to do so. The typical borrower in mid-2021 would suffer a significant loss of equity if forced to sell.

According to the Murdoch University, pre-COVID property prices in Sydney were A$875,000 on average. The typical debt was $670,000 before COVID. By 2021, borrowers in Sydney had increased their debts to $750,000 and needed a deposit of $275,000.

A drop in COVID levels to pre-COVID prices would result in a borrower regaining only $125,000 from the property’s sale after all expenses are calculated.

The company also took a deeper look at what would happen to monthly expenses if interest rates increased by one percent.million Calculated that borrowers who took out a mortgage in 2021 needed an extra $500 per month by the end of last year to cope with rising living costs. Mortgage rate rises of 2.5% each year over the next two years would cost an additional $760 per month in mortgage servicing fees.

Between the third quarter of 2020 and the fourth quarter of 2021, new housing loans increased by 15 percent on average to approximately $600,000. Assuming that a Sydney resident’s salary is $110,000 and their debt amount is greater than $750,000, they are committing 45% of their net income to servicing the debt. If interest rates rise to 5%, borrowers will be obliged to devote 58% of their net income towards servicing the debt.

Growth in demand by young borrowers is one of the newest trends in home buying and borrowing. Since March 2020, the number of people aged 35 to 44 taking out housing loans has increased by 60%. The increase has been higher than that of all other categories.

“If this is the case, the consequences to broader economic growth may be significant. Funds that would otherwise be available for consumption and retirement savings would instead be tied up with servicing and guaranteeing debt,” Illion said.

As we have seen, there are a number of young borrowers who are at risk of defaulting on their loans. However, by understanding the factors that lead to delinquency and default, lenders can take steps to help prevent these outcomes.

If you have a credit default on your credit file, please do not hesitate to contact Clear Credit Solutions. We are the experts in removing defaults from credit files and can help get your credit rating back on track. For more information or for a free credit file assessment, please visit our website today.