Risky lending plummets but offset balances continue to climb, despite rate hikes

The value of new home loans with risky levels of debt has plummeted, according to new data released by APRA yesterday.

APRA’s Quarterly ADI Property Exposure report for the March 2023 quarter shows just 7.5 per cent of new owner-occupier and investor loans had a debt-to-income ratio of six times or more, in dollar terms – the lowest level since March 2019.

This is down from 11.0 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 Exposures for March 2023, new lending, ADI’s, released 6 June 2023. The proportion is based on new owner-occupier and investor loans.

Offset balances hit new record high of $246.24 billion

The total amount in residential offset accounts rose to $246.24 billion in the March quarter – a new record high – up $2.19 billion from the previous quarter and up $18.19 billion when compared to the same quarter a year ago.

However, the pace of growth in offset balances has slowed since the June quarter of last year as the RBA continues to hike official rates. For some borrowers this has limited how much extra they can add to their savings, while forcing others to dip into their offset accounts to keep up with rising rates.

Offset account balances – outstanding loans 

Source: APRA Quarterly ADI Property Exposures for March 2023, new lending, ADI’s, released 6 June 2023.

APRA’s March Quarterly ADI Property Exposure report – other key statistics:

• Non-performing loans increased slightly from 0.68 per cent in the December quarter to 0.72 per cent of mortgages in the March quarter, as a proportion of residential mortgage credit outstanding. This is, however, below pre-pandemic levels.
• Loans 30 to 89 days past due rose for the second consecutive quarter to 0.49 per cent of total credit outstanding. This is also below pre-pandemic levels.

RateCity.com.au research director, Sally Tindall, said: “The wealth gap is widening across the country. Some families are buckling under the pressure of rising rates, while others are beefing up their savings in offset accounts.”

“It’s incredible to see balances in offset accounts hit a new record high of $246 billion after one of the most unprecedented increases to our cash rate,” she said.

“That said, growth in offset accounts is slowing as rising mortgage rates increasingly take their toll. Growth in offset balances is likely to continue to slow, and potentially drop in the months ahead as an increasing number of households dip into their savings buffers to make ends meet.

“Soaring mortgage rates have decimated people’s borrowing capacity, particularly with APRA holding firm on the requirement banks add a 3 per cent buffer into their serviceability calculations.

“While this may seem like a troublesome thorn in the side of hopeful first home buyers, it does mean new borrowers are signing up to far more manageable levels of debt compared to their incomes,” she said.

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