Sydney suburbs where $1 million personal debt is a time bomb – realestate.com.au

Households in several areas of Sydney owe creditors an average of more than $1 million in unpaid debts and a widely expected rate hike next week could push them to the brink financially.

An alarming new analysis has revealed a ticking time bomb of debt in suburbs with vastly different income profiles, with debt on credit cards, car loans, mortgages and buy-now-pay later rising.

It comes as experts revealed figures released this week showing that a new rise in inflation has made it highly likely the Reserve Bank will raise cash rates on Tuesday.

The most vulnerable areas include 32 suburbs where the average household told pollsters they had more than $1 million in debt, research firm Digital Finance Analytics revealed.

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RBA Governor Michele Bullock is expected to announce a rate hike next week. Photo: Christian Gilles

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There were another 25 suburbs where the average household total amount of car loans, credit cards, mortgages and other debts was between $850,000 and $1 million.

And while high debt has become common for those who have recently purchased a home, one shocking finding from the study was that many of the highly indebted households had purchased property decades ago.

These households had bought when house prices were much lower and had been making payments for years, but were still burdened with debt – much of which consisted of personal loans or mortgages granted through refinancing deals.

Martin North, head of research at Digital Finance Analytics, said a rate hike would leave these households dangerously exposed.

Digital Analytics founder Martin North. Photo: Hollie Adams/The Australian

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“There is a segment of the population that already has negative cash flow, and for them small rate increases will be disastrous and potentially a tipping point,” North said.

“Many are over-indebted in search of a specific lifestyle, and this is often linked to poor mortgage affordability, forcing people to borrow for other things in search of instant gratification.”

Middle and lower income suburbs with some of the highest average debt levels (all over $1 million) included the Central Coast suburbs of Ettalong Beach, Macmasters Beach and Bateau Bay.

Others included the western and north-western suburbs of Parramatta, The Ponds, Erskine Park, Ryde and North Ryde.

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Personal finance expert and mother-of-three Sarah Megginson said she was a ‘serial’ refinancer and said it could bring benefits if done right. Photo: Michelle Zwaan

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DFA revealed the average amount each NSW household had in unsecured debt, including credit cards and buy now, pay later, was about $7,500. The average consumer loan debt, typically auto loans, was $26,000.

Mr North said current debt levels are the result of a “need it now philosophy” and “I will always have a debt mentality”.

“This is a function of consumer society, the heavy marketing of debt products and the ease with which more debt can be acquired, especially online,” he said.

“Car financing is an example of this. It has almost become the norm for people to have a lease or loan agreement, instead of saving.”

Julian Finch, real estate agent and founder of Check financiallysaid that in the current climate it is common for people to remove equity from their homes through refinancing to pay for living expenses.

“There are many people who are faced with a difficult decision: shopping or paying a mortgage.

Adrian Plebani, with daughter Olivia, has saved a lot after refinancing the family home at a fixed interest rate, just before interest rates were due to increase. Photo Thomas Lisson

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They urgently need to restructure their debts. The problem is that it becomes more expensive in the longer term,” he says.

Mr Finch added that there were others who went into debt on their home loans to get dream cars or holidays.

Compare the Market economics director David Koch said those who refinanced their mortgages to pay for things like car loans or vacations may not realize how big a risk they were taking.

“You’re turning a short-term asset into long-term debt and taking on risks if you can’t meet your repayments. You’ll also have less equity to draw on for future needs like emergencies – which happen to the best of us – and of course your retirement.”

Adrian Plebani, a resident of Panania, recently changed careers and will initially earn about half of his previous income when he settles down. He said he feared the cost of living would rise.

Mr Plebani explained that this recently prompted him to refinance his home loan at a fixed rate. He feels encouraged by this move knowing that cash rates will rise, which will push up variable rates.

“We are relieved,” he said. “Everyday things are becoming more expensive. We know people who will probably rent their whole lives because of the amount of money they spend on things. I’m happy that we only buy what we can afford. We are very careful.”

Sarah Megginson, money expert at Finder, said refinancing to lower your interest rate was sensible, while using it for frivolous spending simply extended the debt.

She said she refinanced a property in 2025 because her equity stake in it had increased and ended up saving. She encouraged others to check their mortgages and make sure they were getting the best deal.

OUTSIDE CITIES WHERE HOUSEHOLDS HAVE THE BIGGEST PERSONAL DEBT

Source: Digital Finance Analytics