80% of borrowers have savings buffer, new survey finds

The findings come in a survey of 1,018 mortgagors commissioned by finance platform Money.com.au, which sought to gauge how financially prepared Australians are for a new environment of higher interest rates and the rising cost of living.

As part of the survey, conducted by PureProfile in late April 2022, respondents were asked to specify how much money they have in their mortgage offset account, home loan redraw facility or savings account, to determine whether they have a substantial financial buffer to navigate increasing costs.

They were also asked what size of an interest rate rise they could cope with in order to continue servicing their loan.

According to the survey, 80 per cent of mortgagors have a buffer in their home loans to meet interest rate rises.

More than two-fifths (42 per cent) said they had more than $20,000 in a mortgage offset account, home loan redraw facility or savings account, while more than a quarter (28 per cent) had more than $50,000, and 14 per cent had more than $100,000.

Victorians were most likely to have savings buffers in place than borrowers in any other state or territory, with more than half (51 per cent) of Victorian borrowers having more than $20,000 to pull from and 28 per cent having $50,000 or more. 

However, the greatest proportion of borrowers who had more than $200,000 at their disposal were in WA; at 10 per cent of WA borrowers.

Overall, 63 per cent of respondents said they believed they could meet their mortgage repayments with a 0.5 per cent rise or more, with 42 per cent saying they could afford a rise of at least 0.75 per cent.

Just over a third (34 per cent) were confident to make repayments that are 2 per cent (or more) higher than their current rates.

Generally, the survey found that younger borrowers were more likely to have a buffer in place. The cohort with the largest proportion of borrowers who said they had no savings to draw on were aged 50 and over (compared to 33 per cent of those aged under 50 years).

However, more older Australians could cope with a rate rise of 1 per cent or more, with half (50 per cent) of this cohort saying so. Around 37 per cent of over 55s said they can make repayments if rates rise by 2 per cent or more, compared with 25 per cent of 40 to 54-year-olds and 20 per cent of 25 to 39-year-olds.

Overall, the survey found that a fifth (20 per cent) of all borrowers had no savings buffer to pull from at all, and 16 per cent said they would not be able to make loan repayments with any kind of rate rise.

'Research suggests a strong proportion of Australians are financially savvy'

Speaking of the findings, financial advisor and Money.com.au spokesperson Helen Baker commented that several factors may have contributed to the fact that a fifth of borrowers have no savings buffers in place, including “jobs in some sectors [having been] impacted heavily by COVID-19 and some borrowers might have been living on their savings while getting back on their feet”, as well as that fact that a small proportion might not be “proactive savers” while “others might have used their savings buffer to clear some debt rather than borrow a higher amount and retain a buffer on a new property”.

“Older borrowers may have also used their buffer to re-invest in property while interest rates were low,” she added noting that older borrowers can access their super, which translates to a type of savings buffer, and a bigger proportion are also closer to paying off their mortgages, reducing their risk around loan repayments. 

“Conversely, younger borrowers have decades in repayments ahead of them, with potentially kids and other financial commitments on the horizon – hence their need to have savings in place,” she said. 

Ms Baker continued: “The research suggests a strong proportion of Australians are financially savvy and may have already been proactively preparing for expected increases in interest rates and the cost of living during the life of their home loan, as well as future changes in their personal circumstances that would impact their income, such as starting a family. 

"Many may have known that the era of cheap money would eventually come to an end.”

Borrowers have been saving

The survey comes as lenders begin increasing variable rates following the decision by the Reserve Bank of Australia to raise the official cash rate for the first time in nearly 12 years.

Speaking following the move, Reserve Bank governor Philip Lowe has flagged more cash rate lifts are on the way, but he's suggested that borrowers can largely manage the costs.

“Increases in interest rates and consumer prices are anticipated to weigh on households’ budgets over the forecast period, but the effect on consumption is expected to be cushioned by a decline in the household saving ratio,” the RBA said.

It believes households could still spend at a growing rate, as they have benefited from “large increases in housing wealth over recent years as prices have risen” and they have built considerable savings buffers through the pandemic.

However, it flagged that “more broadly, while many households would be well placed to absorb higher interest costs without sharp adjustments to spending, some households have low savings buffers and high debt relative to incomes and their spending may fall more sharply than others".

“The additional pressure on household budgets from rising prices could exacerbate these downside risks to consumption, particularly for lower-income households," the RBA said last week.

CEOs of the major banks, including ANZ CEO Shayne Elliott, have voiced similar sentiments given that around 68 per cent of its mortgage portfolio is ahead of repayments (based on redraw and offset), however this is down from 76 per cent last year and 72 per cent as at 1H20.

Approximately a third of all ANZ mortgagors are two or more years ahead of their repayment schedule, according to ANZ, with 30 per cent being “on time”. 

In addition, a growing proportion of ANZ’s loan book now comprises fixed-rate loans – which won’t be affected by rate rises just yet.