Stashing the cash: A new record for mortgage holders

Mortgage holders have stashed a record $271bn in offset accounts, helping drive down interest owed on home loans.

A record $271bn is now sitting in offset accounts, according to APRA

Mortgage holders are stashing more of their cash in offset accounts to help guard against higher-for-longer rates, with a record $271bn now driving down interest owed on home loans across the nation.

But while some are building up their buffers, others are struggling to pay the bare minimum with borrower stress and arrears rates back above pre-Covid levels, according to the latest data from the financial regulator.

A little over two years after the Reserve Bank started hiking the cash rate, pushing it from the ultra-low 0.10 per cent to the current 4.35 per cent, home loan borrowers with spare cash are still topping up their offset balances, with these savings now sitting at a record $271.72bn, APRA’s ADI property exposure statistics data for March shows.

Keeping funds in redraw or offset accounts reduces the amount of interest paid on a home loan, meaning the debt gets paid down faster.

Mortgage offset savings have risen steadily since the central bank pulled the first trigger on the rate hike cycle in March 2022.

The amount of money stashed in offsets rose by $6.27bn in the March quarter and is up $43.7bn, or 19 per cent, in just over two years. The cash rate in that time has risen 4.25 per cent, while the average variable rate has climbed to 6.34 per cent.

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, according to financial comparison website RateCity.

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

“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, meanwhile, ticked up to 0.95 per cent of all mortgages in the three months to March 31.

“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,” Ms Tindall said.

“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,” she warned.

Per the coming tax cuts, which kick in on July 1, all taxpayers earning above the tax-free threshold of $18,200 will get a tax cut.

Among those struggling with mortgage bills, owner-occupiers are faring worse than investors, holding 0.97 per cent of loans in arrears compared with 0.83 per cent of investor loans. Just 0.40 per cent of investor interest-only loans are in arrears.

As banks crimp down on high debt-to-income loans, this segment of lending has also 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 consecutive quarter in the three months to the end of March.

At the peak, in December 2021, a quarter of all new loans had a debt-to-income ratio of 6 times or more. This fell to just 5.2 per cent in the latest quarter.