Gen Z surged back to credit cards at the fastest rate in three years, yet lenders have already responded by cutting limits.
What’s happening: New data from Equifax’s Consumer Market Pulse for Q4 2025 shows Australians dramatically lifted their borrowing across mortgages, credit cards, and personal loans in the December quarter.
Why this matters: The borrowing surge came just before the Reserve Bank confirmed a 25 basis point rate rise in February 2026, meaning many Australians may have rushed into debt at what turned out to be the tail end of a lower-rate window.
Australians moved quickly to secure home loans in the final quarter of 2025, with mortgage credit demand rising 12.3% compared to the same period a year earlier, according to Equifax’s Consumer Market Pulse for Q4 2025, released on 23 February 2026. It marks the strongest growth in mortgage applications in nearly five years.
Kevin James, Chief Solution Officer at Equifax Australia, said the spike was likely driven by two forces colliding. “This is a significant increase in mortgage demand, and a level of activity we haven’t seen in nearly five years. It’s likely to have been supercharged by the government’s expanded 5% First Home Buyer Deposit Scheme that became available in October 2025, and buyers acting on the impression that rates had peaked in late 2025, and therefore rushed to lock in deals before the year’s end.”
For those who borrowed in that window, the timing may prove costly. “If this was their driver, they may have secured the last of the lower rates for a while, following the 25bps increase confirmed this February,” Mr James added.
Gen X borrowers, aged 46 to 55, recorded the strongest growth among all age groups at 13.6% year-on-year. Upgraders, those increasing their mortgages to trade up to larger properties or fund major renovations, led the way by loan purpose with a 16% rise. First home buyer demand followed at 11.2%, and refinancing activity lifted 9.6%.
Geographically, the surge was strongest in Queensland, which posted 17% growth in mortgage demand, followed by Western Australia at 15% and New South Wales at 13.5%.
Gen Z and the credit card comeback
While mortgages dominated the headlines, the report also flagged a notable return to credit cards among younger Australians. Overall credit card demand rose 15.5% year-on-year, with 18 to 25-year-old Gen Z borrowers driving a 23.2% surge in applications.
“Interestingly, in Q4, we saw double digit growth (+15.5% YoY) in the demand for credit cards. What struck me about this is that it was younger Gen Z’s aged 18–25 driving this, with a 23.2% surge in demand. In fact, it’s the highest rate of growth we’ve seen among this cohort for credit cards in three years, and likely due to the wave of aggressive credit card incentive campaigns in the market during the past quarter,” Mr James said.
The same cohort also recorded a 28.8% jump in credit card arrears, raising questions about whether incentive-driven borrowing is outpacing repayment capacity among younger Australians. In response, Equifax noted that lenders appear to have tightened the reins, with average credit card limits for new accounts falling 8.3% year-on-year, and personal loan limits dropping 3.9%.
“This proactive reduction appears to represent responsible lending in action, as banks prioritise stability over high-risk growth,” Mr James said.
For context on how credit card use among Australian businesses and consumers has evolved under economic pressure, earlier data showed monthly credit card spending hitting record highs even as cost-of-living pressures mounted, a pattern the latest Equifax figures suggest has continued among younger demographics.
In the personal loans segment, the picture is what Mr James described as a “fewer but deeper” trend. While the delinquency rate for personal loans improved by eight basis points, the total limits associated with accounts 90 or more days in arrears rose 10% year-on-year.
“We’re seeing a ‘fewer but deeper’ trend in personal loan debt. While the number of people falling behind on personal loans has actually dropped, the amount of money they owe has significantly increased. Essentially, it seems that fewer people are in trouble, but those who are, are carrying much deeper debt,” Mr James said.
The arrears story behind the surge
Despite the surge in mortgage applications, not all existing borrowers are keeping pace. While the number of Australians behind on home loans remained steady, the dollar value of mortgage arrears rose 6.8% year-on-year. The average loan amount at the late stage of delinquency climbed 8.4%, from $371,000 to $403,000.
“This increase in the dollar value of arrears debt for mortgages appears to correlate with higher house prices, potentially forcing buyers into larger loans that carry heavier repayment penalties,” Mr James said.
Arrears stress was concentrated in Victoria, up 16% year-on-year, and New South Wales, up 10.5%. By age group, Baby Boomers showed the fastest rise in mortgage arrears at 14.6% year-on-year, followed by Millennials and Gen Z at 11.3%.
Mr James flagged the trend among older Australians as one to watch. “This pattern of older Australians (aged 66+) carrying this type of debt into retirement is something to keep an eye on, particularly if the rate environment continues to increase.”
For younger first home buyers in particular, affordability pressures are reshaping where they are entering the market. Within the first home buyer segment, Gen Z mortgage demand was strongest in Western Australia, up 16.3% year-on-year, and Queensland, up 14.1%. Mr James noted that “both states where prices exhibit relative affordability to those in New South Wales and Victoria.”
With the RBA’s February rate rise now confirmed and economic conditions for Australian businesses and households continuing to shift, the Q4 2025 credit surge may mark a defining moment. Those who locked in finance just ahead of the rate move may find themselves navigating a tighter lending environment for some time yet.
Keep up to date with our stories on LinkedIn, Twitter, Facebook and Instagram.
