Average Australian household debt levels have reached their highest point ever, with debt now four times higher than it was less than three decades ago.


According to figures in the Buy now, pay later: Household debt in Australia report, prepared by AMP Bank and the University of Canberra’s National Centre for Social and Economic Modelling (NATSEM), average Australian household debt levels have more than quadrupled since 1988, from $60,000 to $245,000.


Among the chief reasons for the high household debt levels are property purchases, with the report claiming that 56% of the country’s household debt is made of owner occupier mortgages.


Thirty-six per cent of household debt is a result of wealth building activities, which includes loans used for the purchase of investment properties.


For owner occupiers, first home buyers have been hit especially hard, with their debt levels at 3.6 times their annual disposable income, up from 3.1 since 2004.


For investors, mortgage debt is at its highest for households headed by a person aged 65 or older, where it counts for 60% of their debt.


According to report, current low interest rates have encouraged people to take on higher levels of debt, but AMP chief customer officer Paul Sainsbury said it’s important people know rates won’t stay low forever.


“We need to better manage our finances, including our everyday cash-flow, as part of a clear long-term plan to pay down debt,” Sainsbury said.


"When thinking about household finances it's essential to factor in the impact if interest rates start creeping back up from their current historic lows,” he said.


According to the report,  a 2.5% interest rate increase would mean debt repayments would rise from 16% to 23% of income for households with mortgages and typical levels of debt, taking annual interest payments from $15,464 to $21,687


Joe Sirianni, head of mortgage broking firm Smartline, agreed with Sainsbury’s sentiment and suggested it might be time people consider moving to a fixed rate mortgage.


“I’ve been saying for quite a while now that it might be time for people to consider locking in their interest rate,” Sirianni said.


“It has been quite remarkable how the interest rates have just continued to fall and how low they’ve got, but I think we might have finally got to the bottom of the curve,” he said.


Sirianni’s encouragement for people to lock in their loans doesn’t come from any concern that interest rates are set skyrocket soon, rather that he would prefer people to be safe, rather than sorry.


“Why not consider locking in at least a portion of your mortgage? I think we’ve ridden it down to the point where there’s no sign of any more downward moves soon,” he said.


“But the RBA have come out and said they expect rates to be relatively low for a decade or so, so you can understand why people aren’t rushing to do anything.


“Even if they don’t fix now and miss the first rate rise, then it’s probably not such a big deal given how low rates are.”


If the RBA does leave the official cash rate at its current 2% mark for a significant period of time, Sirianni believes that would be a positive.


“I think it would really give some confidence if the rate stays where it is at the moment for a while.


“We’ve had this period where they’ve gone downward and now following the APRA intervention the [property] market has fallen away a bit, so I think a period of stability would be a good thing.”