Key takeaways
Non-performing home loans rise for the sixth consecutive quarter to $23.37 billion.
The total money in mortgage offset accounts drops by $6.14 billion.
While it now stands at 0.66 per cent of all credit outstanding, this is still, on average, below what it was in the year before COVID at 0.73 per cent.
THe total amount of money stashed in offset accounts has dropped by $6.14 billion to $265.58 billion, as borrowers dip into savings as cost of living pressures rise.
The value of home loans in arrears by 30 to 89 days has risen for the seventh consecutive quarter, as more borrowers struggle to keep on top of repayments.
It now stands at $14.88 billion according to the latest APRA Quarterly ADI Property Exposure statistics data, released yesterday for the June 2024 quarter.
This amount is a slight increase of $202.1 million, or 1.38 per cent, on the March quarter, however, not surprisingly this figure is 66.3 per cent higher than before the RBA rate hikes (March 2022 quarter).
I'm sure the media will make a lot of fuss about this in the next few days, however while it now stands at 0.66 per cent of all credit outstanding, this is still, on average, below what it was in the year before COVID at 0.73 per cent.
In 2019, the share of non-performing loans was, on average 0.91 per cent.
Today, it stands at 1.03 per cent, after increasing over the last six quarters.
Meanwhile, the total amount of money stashed in offset accounts has dropped by $6.14 billion to $265.58 billion, as borrowers dip into savings as cost of living pressures rise.
Despite the dip, this amount is $37.53 billion higher than it was before the rate hikes began, according to APRA for the June 2024 quarter.
The number of new low-deposit loans is also on the rise, adding further complexity to an already strained market.
As we dig deeper into these numbers, let’s explore what this all means for property investors and how they can navigate this evolving landscape.
The rising tide of mortgage arrears
For the sixth quarter in a row, the total value of non-performing home loans has climbed, now sitting at $23.37 billion.
The rise in mortgage arrears is driven by the financial strain households face from higher interest rates—13 hikes in just over two years.
Sally Tindall, Director of Data Insights at Canstar, highlights the underlying issue, stating:
“It’s concerning but by no means surprising to see the total value of mortgages in arrears continuing to climb.
After more than two years of soaring mortgage rates, many borrowers’ budgets have been stretched to the very last dollar, while others have gone firmly into the negative.”
Despite this, Tindall points out that the situation could be far worse.
With the cash rate rising by 4.25 percentage points, it's somewhat surprising that the percentage of non-performing loans is still as low as 1.03%.
| Proportion of loans in arrears as a share of outstanding mortgages - start of RBA hikes to today | ||
| Quarter | 30-89 days past due | Non-performing loans |
| Jun 2022 | 0.39% | 0.78% |
| Sep 2022 | 0.34% | 0.71% |
| Dec 2022 | 0.42% | 0.68% |
| Mar 2023 | 0.49% | 0.72% |
| Jun 2023 | 0.51% | 0.76% |
| Sep 2023 | 0.54% | 0.80% |
| Dec 2023 | 0.60% | 0.85% |
| Mar 2024 | 0.66% | 0.95% |
| Jun 2024 | 0.66% | 1.03% |
Source: APRA Quarterly Property Exposures statistics, residential mortgages, all ADIs. The proportion is based on all outstanding mortgages recorded from ADIs.
She adds:
“What’s astounding is that at 1.03% of all mortgages, the value of non-performing loans is not double or triple this figure after 4.25 percentage points of cash rate rises.”
This suggests that while many households are indeed struggling, a vast majority are still managing to meet their mortgage repayments—at least for now.
The true test will come if rates rise further or if there is another financial shock that impacts household incomes.
Owner-occupiers hit harder than investors
One striking detail in the APRA report is the disparity between owner-occupiers and investors when it comes to non-performing loans.
Owner-occupiers continue to be overrepresented in the arrears data, with 1.07% of all owner-occupier loans now classified as non-performing.
In contrast, investor loans are faring better, with only 0.86% in arrears.
| Share of mortgages classified as non-performing | |
| Borrower type | Percentage of mortgages in arrears |
| Owner-occupiers | 1.07% |
| Investors | 0.86% |
| Owner-occupiers paying interest-only | 1.04% |
| Investors paying interest-only | 0.44% |
Source: APRA Quarterly Property Exposures statistics, residential mortgages, all ADIs. Based on the value of term loans for each borrowing type.
Tindall explains this difference by pointing out the limited options available to owner-occupiers compared to investors:
“Owner-occupiers are more likely to fall into arrears than investors because they have fewer levers to pull to get relief.
They don’t have tenants to ask for more rent and the prospect of selling up isn’t as straightforward.
Not only are they moving away from a home full of memories and potentially a community where they’ve established deep roots, but they also need to find a new place to call home, which isn’t an easy ask in this market.”
This distinction is crucial for property investors to understand.
While the rising arrears numbers may seem alarming at first glance, it's primarily owner-occupiers who are feeling the brunt of the financial strain.
Investors are better positioned to manage their loans, as they often have rental income to offset rising costs.
Money in offset accounts drops
Another notable trend from the APRA data is the $6.14 billion drop in mortgage offset account balances during the June 2024 quarter.
| Total amount in mortgage offset accounts | |||
| Jun 24 quarter | Change from previous qtr | Change since RBA hikes (March 22 qtr) | |
| Amount | $265.58 billion | -$6.14 billion
-2.3% |
+$37.53 billion
+16.5% |
Source: APRA Quarterly Property Exposures statistics, residential mortgages, all ADIs, balances in offset accounts across all ADIs' residential property exposures.
This represents a 2.3% decline, marking the first time in a year that offset balances have fallen.
This could be a sign that households are dipping into their savings to meet rising mortgage payments and living costs.
Historically, balances in offset accounts tend to dip during June quarters, only to recover later in the year.
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As Tindall notes:
“Australians might have raided their offset accounts in the June quarter, however, we expect the total amount in offset accounts will bounce back in the September quarter.”
Many borrowers are likely to use their tax returns, savings from stage three tax cuts, and energy bill relief to replenish their offset accounts.
While this decline is concerning, it may not indicate a long-term trend of falling savings.
However, it does highlight that many households are feeling the financial squeeze and are relying on their savings buffers to stay afloat.
The rise of low-deposit loans
In the midst of all this financial strain, the proportion of new loans with a loan-to-value ratio (LVR) of 80% or more—meaning a deposit of 20% or less—has risen.
| Value of new loans with an LVR of 80% or more | |||
| Jun-24 quarter | Previous quarter | 1 year ago | |
| Amount | $51.36 billion | $40.64 billion | $44.39 billion |
| % of all new loans in the qtr | 31.9% | 31.1% | 29.5% |
Source: APRA Quarterly Property Exposures statistics, residential mortgages, all ADIs. Note: The proportion is based on the total value of all new loans from the ADIs in dollar terms.
These loans now account for 31.9% of all new mortgages, up from 28.7% in September 2023.
This increase signals a growing appetite for riskier loans, even as interest rates remain elevated.
The data shows that first-home buyers and other borrowers are still eager to enter the market, despite higher costs.
This is a positive sign for the long-term health of the property market, as it indicates that demand remains strong.
Refinancing offers a lifeline
The APRA data also reveals that $7.55 billion worth of new loans were processed as exceptions to the standard serviceability requirements in the June 2024 quarter.
| Value of new loans processed as exceptions to serviceability | ||
| June 24 quarter | Change from the previous quarter | Change from 1 year ago |
| $7.55 billion (4.7% of new loans) | +$1.26 billion (+20%) | +$3.40 billion (+82%) |
Source: APRA Quarterly Property Exposure statistics. Residential mortgages, all ADIs.
This represents a significant 82% increase from the previous year.
These exceptions allow borrowers who are stuck in so-called "mortgage prison" to refinance at a lower rate, even if they fail to meet traditional stress tests.
Tindall describes this as a positive development, noting:
“It’s fantastic to see this figure rise again in the June quarter because it is evidence borrowers are breaking free of mortgage prison and moving to a lender willing to offer them a lower interest rate.
These loans are far better off as exceptions to serviceability than where they could be—in arrears.”
For property investors, this is a key insight.
The refinancing market is still very active, and many homeowners are taking advantage of these opportunities to secure better rates.
This should help stabilise the market in the near term and may prevent a surge in distressed property sales.
RateCity.com.au money editor, Laine Gordon said:
“Some Australians saddled with mortgages are struggling to keep up with the repayments, as more households fall into arrears.
Despite record high levels of savings in the bank, some families are dipping into their offset stash to keep up with rising cost of living pressures.
These are worrying signs for borrowers, but let’s not throw the baby out with the bathwater. Non-performing loans accounted for just 1.03 per cent of all credit outstanding in the June 2024 quarter - that’s a slight increase from 0.91 per cent in the year before COVID.
If that’s you, and you haven’t yet reached out for help, now is the time to pick up the phone.
Banks will go to great lengths to help you back onto your feet - the last thing they want is to see you lose your home.
People wanting to take out a new loan, or refinance, have a steep climb, with the average new loan rate now 6.33 per cent.
On top of this, banks will stress test new mortgage applications at a staggering 9.31 per cent on average.
Someone borrowing $500,000 today would be forking out $3,105 per month in repayments - that’s $1,116 more than if someone took out the same loan at the start of the hikes,” she said.
What does this mean for property investors?
The APRA data highlights several trends that property investors need to keep a close eye on.
While the rising mortgage arrears and decline in offset balances suggest growing financial strain, the overall numbers are still relatively low.
Importantly, investor loans are faring better than owner-occupier loans, meaning that investors are generally in a stronger position to weather this period of economic uncertainty.
The rise in low-deposit loans and the surge in refinancing activity also signal that the property market is still active, with many Australians eager to secure home ownership or improve their financial position.
For seasoned investors, this period presents both risks and opportunities.
On one hand, rising arrears could lead to more distressed sales, particularly from owner-occupiers under financial strain.
This could provide buying opportunities for those with the resources to take advantage of them.
On the other hand, the resilience of the refinancing market suggests that many borrowers are finding ways to avoid falling into arrears, which could stabilise the market and prevent a significant downturn.
In summary, while the APRA data underscores the financial challenges facing many Australian households, it also points to a property market that is resilient, adapting and evolving.
