A tale of two cities: offset balances hit a new record high as arrears climb

The total amount of cash stashed in offset accounts has hit a new record high of $265.45 billion, a 16 per cent rise since the start of the RBA hikes.

Money in residential offset accounts in the December 2023 quarter rose by $8.25 billion (3%) from the previous quarter and an increase of $37.40 billion (16%) since before the rate hikes in the March quarter of 2022, according to APRA’s quarterly authorised deposit-taking institution property exposure statistics.

Offset balances now account for almost 11 per cent of credit limits, the highest share since the record began in 2019.

Total amount in residential offset accounts

Source: APRA Quarterly ADI Property Exposure statistics for Dec 2023 quarter, released 12 Mar 2024. Based on all authorised deposit-taking institutions as collected by APRA.

Overdue mortgages continue to rise

The value of mortgages 30-89 days past due have risen for the fifth consecutive quarter. The December 2023 quarter saw an increase of $1.54 billion, to a total of $13.28 billion. This is more than double the increase in the previous quarter of just over $708 million.

As a share of credit outstanding, the proportion of mortgages 30-89 days past due is still relatively low at 0.60 per cent.

This is up from 0.42 per cent recorded in the December 2021 quarter, when rates were at record lows, but lower than pre-COVID levels where in December 2019 the value of loans 30-89 days past due was 0.70 per cent.

Loans 30-89 days past due

Source: APRA Quarterly ADI Property Exposure statistics for Dec 2023 quarter, released 12 Mar 2024.

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

Source: APRA Quarterly ADI Property Exposure statistics

Non-performing loans also on the rise

Non-performing loans, where the borrower has missed a mortgage repayment by 90 days or more, or the loan is impaired, is also on the rise, with the latest APRA data showing a $1.30 billion increase between the September and December quarters.

However, as a share of credit outstanding, it is low by historical standards, sitting at 0.85 per cent.

This is up from 0.68 per cent recorded a year ago, but lower than pre COVID levels where in December 2019, the share of non-performing loans was 0.90 per cent.

Non-performing mortgages as a share of credit outstanding

Source: APRA Quarterly ADI Property Exposure statistics for Dec 2023 quarter, released 12 Mar 2024.

Non-performing loans as a proportion of credit outstanding

Source: APRA Quarterly ADI Property Exposure statistics

Owner-occupiers more likely to be in arrears than investors

The APRA data for December shows 0.85 percent of owner-occupier loans are in arrears, while just 0.75 per cent of investor loans are in arrears.

Investors paying interest-only are least likely to be represented in the arrears data, with just 0.35 per cent of investor interest-only loans in arrears.

This is unsurprising. Not only are the repayment requirements on interest-only terms lower, but also, investors typically have more levers to pull to get themselves out of financial difficulty, whether that’s increasing a tenant’s rent or selling a property.

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

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

Exceptions to serviceability rise as banks continue to free mortgage prisoners 

A total of $7.29 billion in new home loans written by ADIs in the December quarter were approved outside the banks’ serviceability policies.

This is a rise of almost 9 per cent from the September quarter and a hefty 75 per cent increase compared to the June quarter.

Value of new loans processed outside of banks’ serviceability policies

Source: APRA Quarterly ADI Property Exposure statistics for Dec 2023, new lending, ADI’s, released 12 Mar 2024.

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

Under APRA’s guidelines banks can process loans outside of their serviceability policies, provided it’s done in a “prudent and limited” manner. At 4.8 per cent of all new loans written in the quarter for December 2023, this rise is unlikely to ruffle feathers with the regulator.

High debt-to-income loans continue to decrease

The total value of loans with a debt-to-income of six times or more dropped for the sixth quarter in a row to just $8.33 billion – almost one fifth of what it was at the peak in December 2021.

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

Source: APRA Quarterly ADI Property Exposure statistics for Dec 2023, new lending, ADI’s, released 12 Mar 2023. The proportion is based on new owner-occupier and investor loans.

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