Sydney suburbs where $1m personal debts are ticking time bomb

Many families are increasingly turning to the family home as a piggy bank for securing extra loans.

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Households in multiple Sydney areas owe creditors an average of more than $1m in unpaid debts and a widely expected interest rate hike next week could push them to a financial knife edge.

Alarming new analysis has revealed a ticking debt time bomb across suburbs with vastly different income profiles, with credit card, car loan, mortgage and buy now pay later debt rising.

It comes as experts revealed figures released this week showing another surge in inflation have made it highly likely the Reserve Bank will raise the cash rate on Tuesday.

Some of the most exposed areas included 32 suburbs where the typical household told pollsters they were more than $1m over their heads 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. Picture: Christian Gilles

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There were an additional 25 suburbs where the average total amount households held in car loan, credit card, mortgage and other debts was between $850,000 and $1m.

And while high debts have become common for those who recently bought homes, a shock finding in the research was that many of the households with lofty debts had bought properties decades ago.

These households had bought when home prices were much lower and had been making repayments for years, but were still buried in debt – much of it personal loans, or mortgages extended through refinancing deals.

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

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

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

“Many are over-leveraged, in search of specific lifestyles and it is linked often 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 $1m) included Central Coast suburbs Ettalong Beach, Macmasters Beach and Bateau Bay.

Others were western and northwestern suburbs Parramatta, The Ponds, Erskine Park, Ryde and North Ryde.

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Personal finance expert and mum of three Sarah Megginson said she was a “serial” refinancer and said it could deliver benefits, if done right. Picture: Michelle Swan

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

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

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

“Car finance is a case in point. It has become all but the norm for people to have a lease or loan arrangement, rather than saving up.”

Julian Finch, broker and founder of Finch Financial, said it was common in the current climate for people to draw equity out their homes through refinancing to pay for the cost of living.

“There’s a lot of people who have a hard decision. Pay for groceries or pay for a mortgage.

Adrian Plebani, with daughter Olivia, saved big after refinancing the family home to a fixed rate right before what looks to be a cash rate increase. Picture Thomas Lisson

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They urgently need to restructure their debt. The problem is it does make it more expensive in the long run,” he said.

Mr Finch added that there were others racking up debt against their home loan to get dream cars or holidays.

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

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

Panania resident Adrian Plebani recently changed careers and will initially be earning about half his previous income as he establishes himself. He said he feared the cost of living would get worse.

Mr Plebani explained that this prompted him to recently refinance his home loan to a fixed rate and he feels vindicated by the move knowing the cash rate is set to rise, which will push up variable rates.

“We’re relieved,” he said. “Everyday things are getting more expensive. We know people who will probably rent their whole lives because of how much they spend on stuff. I am glad we only buy what we can afford. We’re very cautious.”

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

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

SUBURBS WHERE HOUSEHOLDS HAVE BIGGEST PERSONAL DEBTS

Source: Digital Finance Analytics