Arrears on the rise despite record levels of cash in offset accounts

The total amount of money stashed in offset accounts has hit another record high of $271.72 billion, as borrowers continue to stash cash in their mortgages despite the rate hikes.

This amount is $43.67 billion higher than it was before the rate hikes began, according to the latest APRA Quarterly ADI Property Exposure statistics data, released for the March 2024 quarter.

Offset balances now account for 12.2 per cent of the total credit owing across the mortgage books of authorised deposit-taking institutions, the highest share since this particular record began in 2019.

Total amount in residential offset accounts

Source: APRA Quarterly ADI Property Exposure statistics. Based on all authorised deposit-taking institutions, excluding payment facilities and specialist credit card providers.

Balances in offset accounts since the start of the rate hikes

Source: APRA Quarterly ADI Property Exposure statistics.

Overdue mortgages continue to rise

The value of home loans 30-89 days past due as a share of the total owing on all mortgages has risen for the sixth consecutive quarter from its low of 0.34 per cent in the September 2022 quarter.

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 (2019) at 0.73 per cent.

Non-performing loans, where the borrower has missed a mortgage repayment by 90 days or more, or the loan is impaired, is now higher it was in the year before COVID.

In 2019, the share of non-performing loans was, on average 0.91 per cent. Today it stands at 0.95 per cent, after steadily increasing across the last five quarters.

Non-performing loans as a proportion of credit outstanding

Source: APRA Quarterly ADI Property Exposure statistics.

Owner-occupiers continue to be overrepresented in the arrears data

The APRA data for March 2024 shows 0.97 percent of owner-occupier loans are in arrears, while just 0.83 per cent of investor loans are in arrears.

Investors paying interest-only are least likely to be represented in the arrears data, with just 0.40 per cent of investor interest-only loans in arrears.

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

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

Interest-only loans holding steady

The value of mortgages on interest-only terms rose by a modest $916 million, compared to the previous quarter.

However, looking at the data as a share of all term loans, the proportion of interest-only loans is declining.

In the March 22 quarter they accounted for 11.3 per cent of term loans. In the March 24 quarter they now account for just 10.8 per cent.

This suggests borrowers are not flocking to interest-only terms to navigate the impact of the rate hikes.

Value of loans on interest-only terms

Source: APRA Quarterly Property Exposure statistics. Share is based on the value of all term loans outstanding.

Exceptions to serviceability drop

A total of $6.18 billion in new home loans written by ADIs in the March 2024 quarter were approved outside the banks’ serviceability policies.

This was a drop of $1.12 billion from the previous quarter (15%) but a hefty 64 per cent increase compared to the same period a year ago.

New mortgages approved as exceptions to serviceability began to rise after a range of banks, including CBA, Westpac and NAB, announced they would process refinance applications under a reduced stress test of around 1 percentage point, if existing borrowers could not meet the standard 3 percentage point serviceability test, provided they met other criteria.

The drop from the previous quarter suggests the numbers of people able and willing to break free of mortgage prison using this lower test is reducing.

As a share of all new mortgages funded in the quarter, it represents 4.7 per cent.

Value of new loans processed as exceptions to serviceability

Source: APRA Quarterly Property Exposure statistics

Value of new loans processed outside of banks’ serviceability policies

Source: APRA Quarterly ADI Property Exposure statistics.

High debt-to-income loans hit a new record low

The total value of new loans with a debt-to-income ratio of six times or more as a proportion of all owner-occupier and investor loans dropped for the ninth quarter in a row.

At the peak, in December 2021, 24.3 per cent of all new loans had a debt-to-income ratio of 6 times or more.

In the March 2024 quarter, it is at a new record low of 5.2 per cent.

The steep reduction in the proportion of new loans with a debt-to-income ratio of six times or more comes on the back of 13 RBA rates hikes – four of which were double hikes. As a result, borrowers have found their total borrowing capacity has shrunk considerably.

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

Source: APRA Quarterly ADI Property Exposure statistics.

Average new loan stress test rises to 9.31%

The average variable rate of loans funded in the March 24 quarter was 6.34 per cent – an increase of around 3.79 percentage points since the start of the hikes.

The average rate banks are now stress testing new mortgage applications is an eye-watering 9.31 per cent.

This is because APRA banks to stress test a new borrower’s finances to make sure they can still afford the mortgage if rates were to rise 3 percentage points from the rate they are applying for, although exceptions can be made.

Prior to November 2021, this buffer was 2.5 percentage points.

Weighted average rates for new loans funded in the quarter

Source: APRA Quarterly ADI Property Exposure statistics

RateCity.com.au research director, Sally Tindall, said: “Money in offset accounts continue to hit record highs as many borrowers remain laser focused on mitigating the financial pain of rising rates.”

“While some households now have record levels of money stashed in their offset accounts, others are falling into arrears,” she said.

“The value of mortgages falling into arrears ticked up to 0.95 per cent of all mortgages. While this is still relatively low, particularly considering the dramatic rise in mortgage rates over the last two years, it is now above what it was in the year before COVID, with little sign of turning around.

“The stage three tax cuts will be critical in helping some families keep up with their mortgage and other bills but for others, it’s not even going to touch the sides.

“If that’s you, and you haven’t already reached out for help, pick up the phone today. Banks don’t want to see you lose your home, any more than you want to hand over the keys. It’s in their interest to help you find a way through, where possible.

“If you are still managing to balance the budget, consider tipping the extra money you’ll soon get from the stage three tax cuts into your mortgage to build up your buffer and help reduce your monthly interest bill.

“While it may seem like a drop in the ocean for those with whopping great debts, when it comes to paying interest on the mortgage, every single dollar counts,” she said.

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