Australian debt hotline flags ‘call for help’ surge: FCA

If debt assistance is the ‘canary in the coalmine’, a national helpline has recorded its first ‘significant upswing’ since interest rates rose.

Usually receiving most calls from property renters, Financial Counsellors Australia (FCA) has expressed concern over an increase in select mortgagors seeking help.

FCA counsellors offer free and confidential advice and support to help people in financial hardship “get back in control of their finances,” it explained.

It works closely with the National Debt Helpline (NDH), which receives ongoing support and funding from both the federal government’s Department of Social Services and the state governments of Victoria and NSW.

A spokesperson for FCA confirmed to Mortgage Business that its financial counsellors had definitely seen an increase in calls related to housing stress.

“While we don’t have exact data on how many calls to the NDH are on mortgage stress, anecdotally counsellors are reporting a clear increase over the past two months,” they explained.

“Calls to the NDH and visits to the NDH website both rose around 28 per cent in January 2023 when compared with January 2022 — the first significant upswing we’ve seen since prices began rising in early 2022.”

The spokesperson explained they were very “concerned broadly” about two groups of mortgage holders.

“The first is the large number of people who’ll be coming off low, fixed rates on to variable rates in 2023,” they said.

“Assuming someone is coming off a fixed rate around 2 per cent on to a standard variable rate, it will mean more than trebling of repayments.

“With reports that a million households are now considered ‘vulnerable’, we are expecting more calls for assistance from middle-income Australians, not just those on low and fixed incomes.”

The FCA also is concerned about a second group of mortgagors: first home buyers who entered the market at a time of low rates, higher prices, a lower serviceability test, and without much in the way of savings.

“Essentially, people with high debt to income ratios with ‘no fat in their budgets’,” they described.

“As a result of higher housing repayments, we’re also seeing an increase in people resorting to credit, particularly Buy Now, Pay Later (BNPL), credit cards and personal loan just to pay for essentials — something we counsel against strongly.”

The FCA does not advise people “take on more debt to deal with debt” but rather talk to their lender as soon as possible.

“They will want to work with you to find a solution and keep you in your home,” the spokesperson stated.

“And do it now — the earlier you act, the more options you will generally have.”

BNPL receiving greater concern

The FCA’s comments about BNPL came at a time when Treasury released details of a swathe of financial and community industry advocates that have called for ‘closing the lending loopholes’ on the payment method.

In calling for BNPL to be regulated as meantime credit, the submissions from major banks, industry associations, regulators, and consumer advocates were “unified in calling for an end” to allowing BNPL providers to “avoid safe lending laws”. 

If passed, the reforms would require companies such as Afterpay, Zip and Humm to comply with “common-sense and well-established consumer protections” in line with other credit products such as credit cards and personal loans, according to Choice, the Consumer Action Law Centre, the Financial Rights Legal Centre and the FCA.

[Related: RBA not intent on ‘smashing Australia’ into recession: Lowe]