Experian has released its fourth annual Risk Radar report, revealing despite low overall rates of missed repayments, signs of credit stress persist, particularly among younger borrowers, multiple account holders, and those who opened accounts in the last five years.

The report was based on a survey of 30 Australian risk leaders and analysis of credit histories of millions of customers, with other key insights including a 42% increase in missed auto loan repayments, a 40% increase in missed mortgage repayments, and a 38% increase in missed personal loan repayments.

A significant 69% of risk leaders predict higher delinquencies and defaults this year. Tighter lending has been reported by 42% of risk leaders, with 81% strengthening assessments.

"Chief Risk Officers and key risk strategy decision makers at Australian credit providers have been preparing for worst-case scenarios over the last 12 months to navigate their loan book through the tumultuous economic conditions," said Director of Client Advisory, Credit Services at Experian, Charlotte Rankin.

Despite the economic recovery, 77% of risk leaders believe Australia is through the worst of the economic conditions, with recovery predicted within two years (42%) or under a year (31%). However, they also predict it will be harder for younger borrowers to gain approval and maintain repayments. The number of accounts with a financial hardship indicator has increased over the last 18 months, but levels remain very low.

"Despite not expecting economic risk factors to get worse, most risk leaders expect that borrowers will continue to falter at higher levels under the weight of current financial pressures," Rankin said.

The report found that auto and personal loans show the greatest signs of stress, with arrears rates for these types of loans increasing significantly since January 2022. Newer home loans (those opened after 2019) are more likely to have missed repayments compared to older loans.

Risk leaders expect another spike in credit stress, despite believing that Australia is through the worst of the economic conditions. Younger borrowers are turning to unsecured personal loans at higher rates and struggling to meet repayments more than any other demographic. The number of accounts with a financial hardship indicator has steadily increased over the last 18 months, particularly for personal loan accounts.

Despite the heightened credit risk environment, lenders are competing to improve their application assessment speed. "By leveraging reliable transaction and alternative data sources, lenders can now assess applications faster, providing clearer outcomes for customers in record time," said Experian's Head of Innovation, Jordan Harris.