Borrowers are stashing spare cash in their offset accounts in a bid to help fend off higher interest rates and the rising cost of living.
According to APRA’s Quarterly ADI Property Exposure statistics, money in residential offset accounts in the September 2023 quarter increased $17.24 billion (7.2 per cent) from the previous quarter, to a record high of $257.20 billion.
This is the highest on record, both in value and percentage and is 10.4 per cent of all total credit limits.
“While the ability of Australians to keep channelling money into their offset accounts is surprising, the focus of households to offset higher rates is not,” Ms Tindall said.
“Tax returns coming in from July of this year is likely to have helped boost borrowers’ offset balances, which rose by an impressive $17.20 billion in just one quarter.
Ms Tindall said since the start of Covid, Australian households have put their family’s finances high on their agenda, a priority that has only amplified in the face of rising rates.
“Of course, this data does not tell the whole story,” she said.
“We know many households are eating into what buffers they have to keep their heads above water, while others are focused on moving every spare dollar into their offset account to counter the cost of higher interest rates.”
The data also showed that owner-occupiers are over-represented in the share of non-performing loans hitting 0.79 per cent of all owner-occupier loans.
Conversely, the value of investor loans classified as non-performing in the September quarter was lower at 0.73 per cent of all investor loans outstanding.
Notably, owner-occupiers haven’t always been over-represented in non-performing loans.
In the September 2021 quarter, the value of non-performing owner-occupier loans as a proportion of all owner-occupier loans was lower than for investors.
Ms Tindall said the resilience of Australians to keep up with the rising cost of mortgage repayments is also evident in the arrears data, which despite being on the rise, is still low by historical standards.
“Interestingly, the data shows owner-occupiers are more likely to be in arrears than investors, albeit slightly,” she said.
“Investors have been able to pass at least part of their increased mortgage costs on to their tenants without having to worry about losing them to a different landlord because there just aren’t an abundance of properties for tenants to move to.”
The value of new home loans with risky levels of debt also dropped for the fifth quarter in a row, clocking in at just 5.7 per cent of all new owner-occupier and investor loans in the September quarter.
This is down from 6.1 per cent in the previous quarter, and well below the peak of 24.3 per cent, in the December 2021 quarter.
Banks have also been more lenient in helping borrowers who are struggling to refinance their loans.
A total of $6.71 billion in new home loans approved July and September inclusive from ADIs were approved outside of banks’ serviceability policies – a rise of $2.56 billion in dollar terms from the previous quarter.
While this accounted for just 4.4 per cent of all new loans funded in the quarter, it was a rise of 61.5 per cent from the previous quarter, where just 2.8 per cent of loans were outside of banks’ serviceability policies.
Ms Tindall said the value of new loans approved outside of the banks’ serviceability policies skyrocketed this quarter after three of the big four banks dropped their serviceability stress test from 3 to 1 per cent, for select borrowers looking to refinance earlier this year.
“APRA currently requires banks to stress test a refinancer’s income to make sure they can still meet the mortgage repayments if rates rose by a further 3 per cent, although banks can, and do, approve select loans outside of these guidelines,” she said.
“The banks helping existing borrowers to refinance to lower rates should be congratulated for providing an escape route from mortgage prison.
“APRA should consider changing their guidance to encourage more lenders to reduce their standard serviceability tests to help borrowers out of mortgage prison.”