‘Astronomical’ rise in mortgage offset accounts since the pandemic: NAB

Mortgage holders squeezed by rising costs have been saving money in offset accounts to blunt the impact of higher interest rates as offset balances continue to grow “astronomically” since the pandemic.

Australians aged under 55 have been rapidly eating into their savings as they bear the brunt of the Reserve Bank’s fight against inflation.

NAB home ownership executive Andy Kerr says mortgage holders have been saving their money in offset accounts to blunt the impact of higher interest rates. Credit: Justin McManus

The amount of money homeowners have been holding in mortgage offset accounts has jumped since 2019, a significant proportion of those funds coming from customers who have consolidated their savings accounts to offset interest repayments on loans as high as 7 per cent.

National Australia Bank has released figures showing offset balances have grown 55 per cent since the pandemic to $45 billion. Nearly 70 per cent of all new eligible loans are taking up offset accounts – up from 50 per cent just two years ago.

“The rise in offset accounts has been astronomical over the medium term – since the pandemic, they’re up 55 per cent,” said Andy Kerr, home ownership executive at NAB. “Even with the cost-of-living increases and the interest rate rises, we’re still seeing offsets growing year on year.”

Kerr said NAB customers, on median, have deposited about $55,000 into their offset account in the past year, with 40 per cent of those funds from people consolidating savings accounts.

While the take-up of offset accounts has substantially increased since the pandemic, so too has the price of homes, which soared 40 per cent nationally. NAB did not detail the average loan size but said those balances had surged 45 per cent over that period.

At Westpac, offset balances grew from $41 billion in 2019 to $60 billion. At ANZ, they grew from $27 billion to $47 billion over that same period, although it has remained relatively stable over the past year. It is a similar story at CBA, where balances grew from $39 billion to $62 billion in the past five years, although it has declined by $1 billion since December.

The RBA this month noted payments into mortgage offset and redraw accounts had increased since mid-2023 to the March quarter of this year but declined in the three months to June.

“In aggregate, households are saving at a lower rate than before the pandemic,” the RBA economists said in the Statement of Monetary Policy.

“At the same time, household net wealth has been supported by higher housing and other asset prices; all else equal, an increase in wealth tends to be associated with stronger consumption.”

Appearing at a parliamentary inquiry on Friday, ANZ chief executive Shayne Elliott said early data suggested mortgage holders had increased their savings after the recent Stage 3 tax cuts.

Although RBA governor Michele Bullock ruled out a rate cut by the end of this year, markets are forecasting a slash to the cash rate before Christmas as the economy slows and the annual rate of inflation eased 0.3 percentage points to 3.5 per cent in June.

The heads of all four big banks told a parliamentary inquiry last week that while they expected the economy to grow in the second half of 2024, it remained a challenging environment for many households.

NAB chief executive Andrew Irvine on Friday morning said cost-of-living pressures continued to be the greatest source of stress for households.

“Our data shows people are having to make tough decisions about where they spend their money,” he said. “They are getting by, but it is hard.”

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