The surprising figure that shows why the mortgage cliff didn’t happen

Australians are putting any extra cash into offset and redraw accounts, new figures reveal, hosing down fears that homeowners unable to afford their mortgages would be forced to sell their homes.

The extraordinary war chest of other savings built up during lockdowns had been drawn down at a steady rate from about $220 billion when it peaked in the second half of 2022 to about $80 billion by March this year, CBA research shows. But the circa $80 billion of savings put away in offset and redraw accounts has only been rising since.

CBA head of Australian economics Gareth Aird tipped those savings would only grow as long as rates remained high.

“Money into offset and redraw is still going up … there are still lots of customers who are still meeting the minimum repayments,” he said. “Households will do whatever it takes to keep the home.”

He said it indicated that homeowners who were already ahead on their mortgage were doing all they could to avoid spending that money.

“Households as a collective are trying not to do that. What they’re doing is adjusting their spending as a first port of call,” Aird said.

Fears a large number of homeowners could be forced to sell have mostly passed. Credit: Anna Kucera

Economists last year feared that a high number of borrowers moving off cheap, fixed-rate mortgages with rates of about 2 per cent would be hit hard by their new, higher rates of about 6 per cent and may have been forced to sell.

There has been little evidence of a high level of distressed selling, prompting many to declare the “cliff” had passed without doing much damage.

AMP senior economist Diana Mousina said that, for now, the risk appeared to have diminished.

“I don’t foresee any levels of major distressed selling in Australia,” she said. “If we do have a major downturn ... that’s a big risk factor. [But] I think it’s a small probability,” Mousina said.

“There’s been an increase in arrears … but consumers have managed to not have to sell their homes. They’ve cut back on spending … they’ve asked their family members for help, they’ve taken on more hours at work if they have that potential,” she said. “But we have seen some implications from the fixed rates, but it hasn’t been as bad as the fixed rate cliff.”

Aird said the resilient savings buffer in offset and redraw accounts made a high rate of mortgage delinquencies less likely.

“It’s a good thing for financial stability. It means many households have money sitting against their loan which they can use if they get into financial difficulty,” he said.

The reduction in savings in other types of accounts was being used as a buffer against rising cost of living expenses, Aird said.

Atelier Wealth managing director Aaron Christie-David said few borrowers were comfortably ahead on their mortgage, and those who weren’t were draining other savings and cutting back.

“There’s a small percentage that are doing quite well. They’re ahead by a few months and they have good incomes,” Christie-David said. “The other 80 per cent are working families burning the candle at both ends and the savings are taking a big hit. I see it everywhere I go. Cafes empty, when the kids go to swimming the classes are nearly empty, when I go to the gym it’s half full.”

Red Maple Finance director Nariman Amalsadiwala agreed that borrowers were cutting back.

“I’ve seen people cutting back lunch or dinner visits to restaurants or takeaways,” he said.

Amalsadiwala said his clients were avoiding withdrawing money from their excess mortgage payments and delaying any big spending decisions.

“Redraw balances and offset balances, there are still quite a good amount of people who have those balances growing,” he said. “The reason why some of the people are growing those balances, people are putting off their decision to invest or upgrade. I have clients who want to upgrade their family home [but] they are scared of the high interest rates.”

Aird said home owners didn’t want to go backwards and would do what the could to keep their repayments up.

“Households built up a lot of buffers in the pandemic, and they’re trying to stay ahead,” he said.

Christie-David agreed borrowers wanted to avoid a feeling of going backwards.

“When rates are at 6 per cent they’re going to put their money in their loan,” he said. “When it’s in the loan, it’s a mental barrier. ‘I’ve put this money in my mortgage,’ and they won’t touch it.”