Household savings drop to lowest level since 2007: ABS

The latest Australian National Accounts: National Income, Expenditure, and Product data released by the Australian Bureau of Statistics (ABS) has revealed the household savings to income ratio has dropped to its lowest level recorded since December 2007, from 2.8 per cent to 1.1 per cent as of September 2023.

According to the ABS, household savings dropped as a result of a strong rise in income payable (up 6.3 per cent), which recorded its highest growth since September quarter of 1977 (27.9 per cent) throughout the year.

Interest on dwellings contributed to the rise in income payable as fixed-rate mortgages continued to transition to higher variable rates along with the absence of the Low and Middle Income Tax Offset (LMITO).

Furthermore, inflationary pressures further contributed to the decline in household savings, as it increased nominal household consumption by 1.4 per cent.

Commonwealth Bank of Australia head of economics Gareth Aird noted that interest paid on housing debt rose by 70.6 per cent over the past year (amounting to $12.3 billion) and “a massive 173.3 per cent from pandemic lows”.

“The picture is worse for households when adjusted for inflation. Real household disposable income declined by 1.7 per cent/qtr over the September quarter (the fourth consecutive quarterly decline),” Mr Aird said.

“Real household disposable income has fallen by 8.3 per cent since its peak in Q3 21. Against this backdrop it is no wonder that consumer sentiment has been at levels consistent with a major negative economic shock for over a year.”

Westpac senior economist Matthew Hassan said interest payments rose to $36.7 billion (up by 7.6 per cent on the last quarter), however, the Reserve Bank of Australia’s (RBA) string of rate holds between July and October has slowed the pace of increases when compared to the previous five quarters.

“Total interest payments are now over one and a half times higher than they were at the start of 2022,” Mr Hassan added.

“Overall, the September quarter update is a bleak one for households possessing incomes under intense pressure, with diminished scope for support from savings and spending already weak, especially when viewed in per capita terms.

“With the Westpac card data pointing to further weakening in spending momentum through October to November, consumer sentiment stuck around historical lows, and an RBA interest rate rise in November still to impact, near-term prospects look very challenging.”

The 16-year low in savings rates came as mortgage broker group Loan Gallery and Sydney-based specialist financial technology platform Effi enter a partnership.

The partnership will see Loan Gallery as the first to market with Effi’s white label financial tracker tools, which are “custom-built” personal financial management (PFM) apps powered by open banking.

In particular, the Savings Tracker will provide mortgage brokers with insight into a borrower’s spending habits and income in real time, allowing collaboration between the broker and borrower to establish a deposit savings goal.

Steve Matsoukas, director at Loan Gallery, said through the partnership mortgage brokers can “nurture first-time home buyers with a personalised savings plan that will accelerate them onto the property ladder”.

[RELATED: Christmas comes early: RBA holds]