Boomers lead way in defaults

Putting the flat-screen TV on the house has begun to catch up with some in the baby boomer generation.

Figures from credit check agency Veda Advantage show defaults for those in the 44 to 62-year-old age group have soared by 19.37 per cent in the last nine months and retail finance was the main cause.

Veda Advantage managing director John Roberts said he had warned a year ago that the "interest-free - two years to pay" type deals would create problems and it appeared that was now the case.

"The statistics show the lifestyles of the baby boomers are coming home to roost - they are defaulting on debts mounted up over the years which they can now no longer service."

Roberts said many in the baby boomer generation had bought consumer goods on their mortgage and the defaults were likely to be a result of people losing their jobs.

He said that anecdotally he had also heard more baby boomers were affected by redundancies than those in the younger generations.

At the same time people had also seen their personal wealth shrink and those who had higher debt levels were now facing the possibility of having to consolidate debt.

"Their loan-to-value ratio might have been 80 per cent and is now 105 per cent."

But not all baby boomers were feeling the pain of debt overloading. The baby boomer generation also had the highest increase in mortgage applications so far this year.

Overall applications were up 12.99 per cent but for baby boomers the increase was 18.56 per cent.

"Maybe a lot have just sat idle over the past two years and now they see interest rates at a low and expected to stay low for the next year and the housing market has stabilised [so] they want to get back in."

Roberts said a shift away from credit by generations X and Y was more of a surprise.

Applications for credit had fallen, with hire purchase applications down 25 per cent and credit cards down 10.67 this year.

A survey of the general population also showed more people were planning to save up and use cash to make a major purchase than credit over the next six months compared with the last year.

"Two generations now have got a totally different view on how they see credit."

But Roberts did not believe the reluctance to use credit would last.

If unemployment began to improve next year people would start borrowing again and lenders would come up with more products to facilitate that.

He said consumer defaults were expected to stabilise but commercial or business defaults, particularly those in the small and medium enterprises, would continue to grow.

"There is usually a lag on the business side - the same as unemployment lags the real economy by about 12 months."

GENERATION GAP

Default increase for nine months to September:
* Baby boomers (44-62 years): +19.37 per cent
* Generation X (28-43 years): +3.55 per cent
* Generation Y (under 28): -2.27 per cent
* Overall: +6.48 per cent