Non-performing loans also increasing
Funds held in residential offset accounts have increased significantly in recent months while mortgage arrears have also climbed, data analysis by RateCity has uncovered.
According to APRA’s quarterly data on property exposure for the December 2023 quarter, the total amount of cash stashed in offset accounts surged by 3% or $8.25 billion from the preceding quarter, marking a $37.4 billion or 16% increase from the March quarter of 2022, prior to the RBA rate hikes.
RateCity, however, noted that there was a simultaneous rise in overdue mortgages, which has increased for the fifth consecutive quarter. Mortgages that are 30 to 89 days past due increased by $1.54 billion in the December quarter, totalling $13.28 billion. This figure more than doubles the increase seen in the previous quarter, which was slightly over $708 million.
Despite the rise, RateCity pointed out that the percentage of mortgages 30 to 89 days overdue remains relatively low at 0.6% of total outstanding credit. This rate is an uptick from the 0.42% recorded in the December 2021 quarter but remains below the pre-pandemic level of 0.70% in December 2019.
Non-performing loans are also on an upward trend, with APRA data revealing a $1.30 billion increase from the September to December quarters. Yet, at 0.85% of outstanding credit, the level is low historically. This compares to 0.68% a year ago and is below the pre-COVID rate of 0.90% in December 2019.
Meanwhile, owner-occupier loans in arrears stand at 0.85%, while investor loans in arrears are slightly lower at 0.75%. Investor interest-only loans have the lowest arrears rate at 0.35%, with the trend is attributed to the lower repayment obligations of interest-only loans and the financial flexibility of investors, who can adjust rents or sell properties to avoid financial distress.
According to RateCity, APRA’s report highlights a 9% increase in new home loans approved outside of banks’ serviceability policies in the December quarter, reaching $7.29 billion – a substantial 75% rise from the June quarter.
The increase follows decisions by three of Australia’s major banks — Westpac, Commonwealth Bank of Australia, and National Australia Bank — to lower their standard serviceability buffers for select borrowers who could not refinance under the 3% buffer but met other strict criteria.
Despite these shifts, RateCity said the volume of loans approved outside serviceability policies, representing 4.8% of all new loans in the December quarter, is not expected to concern regulators, as long as banks adhere to APRA’s guidelines for prudent lending practices.
Furthermore, the total value of loans with a debt-to-income ratio of six times or more has decreased for the sixth consecutive quarter, dropping to $8.33 billion, significantly less than its peak in December 2021.
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