Australia’s quiet credit crunch

Australia’s next credit problem isn’t the family home. It’s the SME/Mid Market business mortgage.

Inflation is still above target, living standards per person are already weak, official rates are still rising, and a large slab of SME and mid-market lending now sits outside the majors at 12–15% interest rates.

The cash rate is 4.6% after the RBA’s fourth hike this year. Core inflation is stuck around 3.6%. Headline GDP is scraping along; GDP per person has gone sideways or backwards. Unemployment is drifting up. Housing is already in a correction. Construction and hospitality insolvencies are at multi decade highs.

The missing channel is private credit. The sector has grown about 540% in a decade, to roughly $200–300 billion. That’s only ~3% of the banking system which is why APRA can call system risk “contained.” Against corporate lending however, it is closer to 14% of all business loans and nearer 18% of all commercial property loans.

After the GFC, and again as APRA tightened SME and commercial property rules, the major banks stepped back. Private funds, SMSFs and family offices filled the gap. Bank business rates sit around 9–10%. Second mortgages and development debt commonly sit at 12–18%.

Three features make this the soft spot. Private Capital funds the sectors already failing. Property loans are 40–60% of their book, and the construction industry dominates insolvency lists. The money looks sticky until funds gate redemptions; that has already started. And bank warehouse facilities mean a messy unwind washes back onto the major banks.

This is not US subprime. The vulnerable mortgage this time is a business facility secured against a factory, a site, or the owner’s home. Scale still matters: this is a mid-market and property backed credit event, not a nationwide home loan collapse.

Watch the signs. Greater scrutiny from fund auditors around valuations, more gates and write downs, warehouse lines pulled, construction insolvencies staying elevated even if headline GDP stays positive. That book exists. The first cracks are visible. The question is how wide it spreads.

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