Mortgage payments as a proportion of household disposable income reached an all-time high in the September quarter, and the Reserve Bank forecasts the proportion of income going to payments will keep increasing until the end of next year.
In a report in the latest Statement on Monetary Policy, the RBA said scheduled principal and interest payments of all outstanding mortgages increased to around 10 per cent of household disposable income in the September quarter. This is above the estimated previous historical high of 9.5 per cent.
The RBA said scheduled payments as a share of household disposable income will increase further as borrowers with expiring fixed-rate loans roll off onto higher rates. It estimates that mortgage payments will increase to 10.5 per cent of household disposable income by the end of 2024.
Between May 2022 and September 2023, the average new variable home loan rate increased by 40 basis points less than the 400 bps increase in the cash rate over that period.
The average variable rate on new housing loans increased a little faster than the cash rate between June and September, as competition for housing loans eased.
The average rate on outstanding loans declined a little in recent months, reflecting banks’ willingness to discount to retain existing customers.
The RBA said borrowers overall are still adding to their savings but some have been drawing down funds to deal with cost of living pressures.
The average rate on outstanding at-call deposits, which make up about three quarters of outstanding deposits, has risen by around 250 basis points since May 2022, which is 150 bps less than the increase in the cash rate to September.
Advertised rates on bonus saver accounts have increased more than on standard at-call accounts.
Average rates on new term deposits have increased by more than the cash rate since the start of 2022, in line with larger movements in BBSW and swap rates. Higher term deposit rates also reflect banks’ interest in increasing the term deposit share of their funding to address TFF maturities, given the favourable treatment of term deposits in liquidity ratios compared with at-call deposits.
In aggregate, banks have passed on around 75 per cent of the total increase in the cash rate to September to depositors.
The RBA said banks’ funding costs increased a little in the September quarter as they replaced maturing bonds issued at much lower rates, and average deposit rates increased. These factors were partly offset by a decline in BBSW rates.
Banks are managing their Term Funding Facility repayments smoothly. Around A$88 billion of the $188 billion provided to banks under the TFF has matured, with banks repaying $64 billion in the September quarter.
The next concentrated maturity period will be in the June quarter next year, when $96 billion of TFF funding matures.
Bank bond issuance was above average in the September quarter, at about $40 billion. Around two-thirds of issuance was in the domestic market.
Yields on three-year bank bonds have remained high over recent months, at around 5 per cent for the major banks.
The total stock of deposits has grown more slowly over the past six months than during the pandemic, in part because slowing credit growth creates fewer new deposits.