All the major banks reported increases in their mortgage offset account balances in their first half results, indicating that what was seen as a short-term approach to parking stimulus payments during the pandemic has become a long-term savings and debt management strategy.
And movement in repayment buffers has become a standard credit quality measure for mortgage lenders.
This topic is also of keen interest to the Reserve Bank, with the RBA noting in its quarterly Statement on Monetary Policy on Tuesday that “higher interest rates provide an incentive for all households to save more.
“Consistent with this, households with mortgages are overall contributing a little more to their offset and redraw accounts than mid-last year. These payments are now a bit above their pre-pandemic average.
“In aggregate, despite cost-of-living pressures and higher household debt payments, the (gross) savings rate is around pre-pandemic levels; consistent with some households making extra mortgage payments.”
The bank reporting season that wrapped up this week confirms that this form of saving, at least through offsets, continues to expand.
NAB reported that its offset balances grew from $41 billion in the March half last year to $45 billion in the latest half. The proportion of customers with offset and redraw balances worth more than one month’s repayment grew from 66.4 per cent to 68.2 per cent.
The bank’s Australian home loan balance is $344 billion. It has identified $16.6 billion of those loans as higher risk exposures because they have repayments buffers of less than 12 months and dynamic LVRs above 80 per cent.
Those at greatest risk, with repayment buffers of less than three months and dynamic LVRs above 90 per cent, represent $3.2 billion of loans.
Westpac reported that offset account balances hit $60 billion during the March half and have grown from 46 billion in September 2020 – a 30 per cent increase.
Eighty per cent of Westpac’s Australian home loan accounts are ahead on repayments – up from 79 per cent in the previous corresponding period.
A third of accounts are ahead by two years or more. 41 per cent of accounts are on time or less than one month ahead – down from 45 per cent in year ago.
ANZ’s offset balances were $45 billion in the March half, growing from $38 billion in the previous corresponding period and from $28 billion in March 2020 – a 60 per cent increase over four years.
The proportion of ANZ home loan accounts ahead of repayments rose from 70 per cent to 79 per cent year-on-year. The proportion of accounts ahead by two year or more has come down a little over the past year but is still around 30 per cent.
ANZ has calculated the average dynamic LVR of its portfolio at 49 per cent, excluding offsets, and at 43 per cent, including them.
Commonwealth Bank’s offset balances reached $75 billion in the December half, up from $70 billion in the previous corresponding period.
79 per cent of home loans customers were in advance on payments, with 34 per cent ahead by two years or more.
When the bank measures the credit quality of its mortgage book, it looks at arrears rates, hardship and repayment buffers.
Arrears and hardship rates went up for all lenders during the half but buffers are in surprisingly good shape.