Australia’s love affair with property, credit cards, and buy-now-pay-later platforms has left many households in a precarious position: overleveraged. As we move into 2025, mounting debt, changing lending standards, and rising living costs have put a spotlight on the risks of carrying too much leverage. But what does it mean to be overleveraged, how can you tell if you’re at risk, and what’s new on the policy front this year?
What Does It Mean to Be Overleveraged?
In simple terms, being overleveraged means you’ve borrowed so much that your financial safety net is dangerously thin. It’s when your debts (mortgages, car loans, credit cards, and personal loans) are so high that even a small rise in interest rates, a dip in income, or an unexpected expense could tip you into financial distress.
In 2025, the Australian Bureau of Statistics reports that household debt-to-income ratios remain among the highest in the world, with the average Aussie owing nearly two times their annual disposable income. For property owners in Sydney and Melbourne, mortgage repayments alone can eat up more than 40% of post-tax income—well above the 30% threshold that banks and regulators consider ‘safe’.
- High loan-to-value ratios (LVRs) on home loans
- Large balances on credit cards or personal loans relative to income
- Using new debt to pay off existing debt
- Minimal savings or emergency funds
2025 Policy Updates: Stricter Lending & New Consumer Protections
The past year has seen a wave of regulatory changes aimed at curbing risky borrowing. Here’s what’s new in 2025:
- APRA’s Tighter Serviceability Buffers: The Australian Prudential Regulation Authority (APRA) now requires lenders to assess borrowers’ ability to repay home loans at interest rates at least 3.5% above the current rate, up from 3% in 2024. This makes it harder to qualify for large mortgages, especially for first-home buyers with small deposits.
- Credit Card Squeeze: Banks are under pressure to tighten credit card limits and scrutinise applicants’ spending, following a spike in late payments and delinquencies in 2024. Expect tougher approval standards and lower starting limits in 2025.
- BNPL Regulation: New ASIC rules now require buy-now-pay-later providers to conduct formal credit checks and limit late fees, closing a loophole that let many Australians take on unaffordable short-term debt.
These policy moves are designed to protect consumers, but they also mean anyone already at their borrowing limit could find refinancing or new credit much harder to obtain.
Spotting the Red Flags: Are You Overleveraged?
Not sure if you’re overleveraged? Watch for these warning signs:
- Monthly debt repayments (including mortgage, car, credit cards) exceed 35% of your after-tax income
- You’re routinely paying only the minimum balance on credit cards
- Your savings buffer wouldn’t cover three months of living expenses
- You feel anxious about rate rises or job security
- Refinancing or new credit applications are knocked back
In 2025, with interest rates still elevated and cost-of-living pressures biting, these red flags are more common than ever. The Reserve Bank of Australia’s latest Financial Stability Review notes a rise in mortgage stress, especially among recent first-home buyers and investors with multiple properties.
How to Recover If You’re Overleveraged
Getting back on track isn’t easy, but it’s possible with discipline and the right strategy. Here’s how to start:
- Audit Your Debts: List every loan, credit card, and BNPL arrangement. Note the interest rate, monthly payment, and remaining balance.
- Prioritise High-Interest Debts: Pay down credit cards and personal loans first. Consider consolidating debts into a lower-rate loan if your credit score allows.
- Slash Unnecessary Expenses: Review your spending for recurring subscriptions, dining out, or non-essentials. Every dollar saved can go towards debt reduction.
- Build a Buffer: Aim to save at least one month’s living expenses as a starting emergency fund—even while paying down debt.
- Seek a Rate Review: With lenders competing harder for good customers, ask your bank for a better mortgage rate, or consider refinancing if you’re not locked in by negative equity.
- Get Proactive Help: Don’t wait for missed payments. Reach out to your lender’s hardship team or a reputable financial counsellor for tailored support.
The Bottom Line: Leverage Isn’t Bad—But Know Your Limits
Debt can be a powerful tool for building wealth, but too much leverage leaves no room for error. In 2025, with stricter lending rules and higher living costs, Australians need to pay closer attention to their financial foundations. If you spot the warning signs early and act decisively, it’s possible to regain control, reduce stress, and start building real resilience for the years ahead.
