Mortgage Defaults Drop as Offset Balances Hit Record Highs – What It Means for Borrowers

It’s been two years of interest rate hikes, rising cost-of-living pressures, and constant warnings about mortgage stress.

And yet, Australian homeowners are proving more resilient than many expected.

The latest data from APRA’s Quarterly Property Exposure Statistics shows that offset account balances have surged to record highs, while mortgage defaults have fallen for the first time in two years.

That’s right, despite rates staying stubbornly high and household budgets being stretched to the limit, many borrowers are still in control, using smart strategies to keep their mortgages afloat.

Let’s break down the numbers and see what this means for property investors and homeowners.

Offset accounts surge to a record $300 billion

According to the report, in the December 2024 quarter alone, offset balances grew by a staggering $12.9 billion, reaching a record $300.7 billion.

That’s now 11.4% of total mortgage credit, the highest proportion since APRA began tracking this data in 2019.

To put it in perspective:

• Since the RBA started hiking rates in March 2022, offset balances have surged by $72.6 billion—a 32% increase.
• Australians are parking more money in their offsets despite rising expenses, showing a strong commitment to minimising interest payments.

Why are offset accounts growing?

Offset accounts reduce the amount of interest paid on a mortgage, meaning every extra dollar saved goes directly toward cutting down loan costs.

With mortgage rates still sitting above 6%, this is a smart way to keep repayments manageable without making major financial sacrifices.

Canstar's Data Insights Director, Sally Tindall sums it up well:

"Many Australians fortunate enough to have spare dollars to their name have been stashing this money in their offset accounts in a bid to take the sting out of higher rates."

This isn’t just about reducing debt, it’s also about financial security.

With economic uncertainty still looming, having a financial buffer in an offset account provides much-needed flexibility.

Mortgage defaults drop for the first time in two years

For seven straight quarters, the number of non-performing loans (mortgages overdue by 90+ days) had been climbing.

But in the December quarter, they fell from 1.06% of all loans to 1.05%, the first drop since December 2022.

To put that in context:

• In March 2022, before rate hikes began, 0.78% of all loans were non-performing.
• By September 2024, that had jumped to 1.06%.
• Now, for the first time in two years, we’ve seen a small but significant improvement.

Sally Tindall notes that while 1.05% is still a concerning figure, it’s remarkable that defaults haven’t risen further considering the financial strain on households.

She further said:

"Non-performing mortgages took a surprise step back this quarter. It’s incredible that this figure isn’t higher, given the rate pressure borrowers have been under."

While long-term defaults (90+ days overdue) fell, there was a small rise in short-term arrears (loans 30-89 days overdue), increasing from 0.58% to 0.59%.

This suggests that while most borrowers are keeping up with repayments, there are still plenty who are struggling in the short term.

If interest rates stay high for much longer, we could see some of these short-term arrears turn into full-blown defaults.

Who’s feeling the mortgage stress?

The APRA data shows that owner-occupiers are struggling more than investors.

In fact, the trend is clear:

• Investors are faring better than owner-occupiers, with a significantly lower rate of mortgage defaults.
• Interest-only borrowers—especially investors—are in the strongest position. Just 0.43% of investor loans on interest-only terms are overdue, compared to 1.11% of owner-occupier loans.

This is because investors typically have more financial levers to pull, such as rental income, tax benefits, and the ability to sell an investment property if needed.

Meanwhile, owner-occupiers, especially those who bought recently at high prices, are feeling the full force of rising mortgage repayments without the financial flexibility that investors often have.

Interest-only loans: no mass comeback

Despite higher rates, borrowers are not rushing back to interest-only loans, according to APRA's data.

The proportion of interest-only loans barely budged in the December quarter, rising just 0.01 percentage points to 10.9%.

To compare:

• In March 2019, 23% of all home loans were interest-only.
• Today, that number is less than half that level.

Borrowers are choosing to stick with principal-and-interest repayments, which signals a commitment to paying down their loans rather than opting for short-term relief.

What this means for property investors & homeowners

1. Borrowers are playing defence

Rather than spending big or taking financial risks, Australians are building their financial buffers, stashing more in offset accounts and staying on top of their mortgages.

This conservative approach is a good sign for market stability.

2. Mortgage defaults are holding steady (for now)

Despite rate hikes, the expected wave of mortgage defaults hasn’t materialised yet.

But the slight increase in short-term arrears suggests we’re not out of the woods.

3. Investors are holding firm

With fewer defaults and more financial flexibility, investors are proving once again why property remains a long-term wealth-building asset.

While owner-occupiers are feeling the pinch, investors with well-structured portfolios are staying ahead of the game.

Final thoughts

The cash rate may have peaked, but interest rates aren’t coming down anytime soon.

As Sally Tindall puts it:

"The cash rate might have dialled down a notch, but with the average owner-occupier mortgage rate still above 6%, they still have a fair bite to them."

So, while we’re seeing some positive signs, rising offset balances, and stable mortgage defaults, the real test will be how long households can sustain this financial discipline.

For property investors, this data reinforces the importance of a long-term strategy.

As I always say, markets will shift, and interest rates will change, but those who focus on strong cash flow, financial buffers, and quality assets will always come out ahead.

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.