Balances in offsets hit new record high – new data reveals

Despite high interest rates and the rising cost of living  the total amount in residential offset accounts has risen to a new record high of $257.20 billion as borrowers stash cash in their mortgages to mitigate the impact of the RBA hikes.

The latest APRA’s Quarterly ADI Property Exposure statistics shows that money in residential offset accounts in the September 2023 quarter increased by $17.24 billion (7.2%) from the previous quarter.

This is the highest on record, both in value and percentage and is 10.4 per cent of all total credit limits.

RateCity.com.au research director, Sally Tindall, said:

“It’s incredible to see money in offset accounts continue to rise in defiance of the rate hikes, posting a new record high of over $257 billion.

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.

Tax returns coming in from July of this year are likely to have helped boost borrowers’ offset balances, which rose by an impressive $17.20 billion in just one quarter.

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.

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."

Total amount in offset accounts

Based on all outstanding loans with Authorised Deposit Taking Institutions (ADIs)

Source: APRA Quarterly ADI Property Exposure statistics for Sept 2023 quarter, released 5 Dec 2023.

Loans in the red are still low but on the rise

The value of loans that were 30 – 89 days overdue increased for the fourth quarter in a row to 0.54 per cent of total credit outstanding.

The value of non-performing loans, that is, loans that are either impaired or 90 days past due, rose for the third quarter in a row to 0.80 per cent of credit outstanding.

Both of these categories are on the rise, but still low by historical standards.

Overdue loans as a share of credit outstanding

Source: APRA Quarterly ADI Property Exposure statistics for Sept 2023 quarter, released 5 Dec 2023.

Loans 30-89 days past due as a % of credit outstanding

The latest data also shows the number of loans where the mortgagee is in possession dropped from 267 in the June quarter to 256 in the September quarter.

Which type of borrowers are more than three months behind on their repayments?

According to Ratecity.com.au, owner-occupiers are over-represented in the share of non-performing loans.

The latest data for the September 2023 quarter shows the value of owner-occupier loans classified as non-performing was 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 further 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.

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."

‘Non-performing’ loans as a proportion of credit outstanding according to loan type

Source: APRA Quarterly Property Exposure statistics, September 2023. Based on the value of term loans for each borrowing type.

Exceptions to serviceability rise by over 60 per cent as banks release refinancers out of mortgage prison

A total of $6.71 billion in new home loans approved in July and September inclusive of 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.

This notable increase comes after three of Australia’s big four banks, Westpac, CBA and NAB announced in May, June and July respectively, that they would reduce their standard serviceability buffers to 1 per cent for select borrowers who could not refinance under the current 3 per cent buffer, but still met a strict set of other criteria.

Ms Tindall commented:

“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 rise by a further 3 per cent, although banks can, and do, approve select loans outside of these guidelines.

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."

New loans recorded as exceptions to serviceability policy

Source: APRA Quarterly ADI Property Exposure statistics for Sept 2023, new lending, ADI’s, released 5 Dec 2023. The proportion is based on new loans funded in the quarter.

Super-sized loans a problem of the past

The value of new home loans with risky levels of debt has 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.

Debt-to-income ratios of six and over are considered risky by APRA.

Proportion of new mortgages with a debt-to-income ratio of six times or more

Source: APRA Quarterly ADI Property Exposure statistics for Sept 2023, new lending, ADI’s, released 5 Dec 2023. The proportion is based on new owner-occupier and investor loans.

About Chris Dang Chris Dang is an accountant by training and has worked in the Financial Planning industry for many years. Chris brings together property, accounting, and financial planning experience to help clients of Metropole Wealth Advisory create a holistic plan for their wealth.