to australian business economists ( abe ), sydney, 31 march. the fixed rate share of housing credit rose over 2020 and 2021 as borrowers were attracted by the historically large discount on fixed rates relative to variable rates available over much of this period. see rba ( 2022 ), ‘ review of the yield target ’. lovicu g, j lim, a faferko, a gao, a suthakar and d twohig ( 2023 ), ‘ fixed - rate housing loans : monetary policy transmission and financial stability risks ’, rba bulletin, march. while it is difficult to observe savings behaviour, partial data suggest that many fixed - rate borrowers have accumulated similar savings to variable - rate borrowers. see lovicu et al, n 4. while we have detailed data on mortgage payments of different borrowers, unfortunately we don ’ t also have data on their spending behaviour. one factor behind this is the fact that any early adjustment to spending by such borrowers would have been made on the basis of considerable uncertainty about the actual mortgage rate they would be rolling onto when the time came. it is also the case that most fixed - rate loans do not allow the use of offset or redraw facilities, and that many fixed - rate borrowers will have accumulated savings outside of such facilities. see lovicu et al, n 4. it ’ s hard to say if this is the same average rate of prepayment we would see over a longer period, especially as interest rates were declining for much of the period shown, but it provides a helpful benchmark. note, however, that even though the cumulative difference between actual offset and redraw payments and the historical average declined to zero in 2019, the stock of these buffers was not exhausted – it had just returned to its historical average prior to the pandemic. our estimates suggest that, in aggregate, australians accumulated additional savings during the pandemic equivalent to around 20 per cent of their annual disposable income ( rba ( 2023 ), statement on monetary policy, february ). the materials on this webpage are subject to copyright and their use is subject to the terms and conditions set out in the copyright and disclaimer notice. © reserve bank of australia, 2001 – 2023. all rights reserved. the reserve bank of australia acknowledges the aboriginal and torres strait islander peoples of australia as the traditional custodians of this land, and recognises their continuing connection

– 2015 households steadily made above - average payments and so built additional buffers in their offset and redraw accounts. interest rates were being cut at the time and borrowers saved some of the reduction in their scheduled mortgage payments. then, from 2017 – 2019, borrowers ’ payments into offset and redraw accounts declined below 2 per cent. this occurred at a time of weak income growth, so reducing their actual mortgage payments in this way helped to sustain stronger consumption than would have otherwise been the case. [ 11 ] during the pandemic, borrowers again built up their mortgage buffers at a faster rate than normal, adding a similar additional amount to their buffers as they had done in the earlier episode. indeed for a number of quarters during the pandemic, extra mortgage payments were as much as 2 percentage points above the historical average ( as a share of quarterly disposable income ). extra mortgage payments dipped below 2 per cent in the december quarter, but the additional mortgage buffer still constitutes an important part of the additional savings of households overall. [ 12 ] to give a sense of the size of this additional mortgage buffer, if borrowers decided not to make any extra mortgage payments for a time, it would take around four quarters for the additional buffer built up during the pandemic to run down ( again this is all relative to their historical norms of australians paying down their mortgages more quickly than required ). graph 5 extra mortgage payments * quarterly ; share of household disposable income % % actual 2008 – 2019 average * net payments into offset and redraw accounts. sources : abs ; apra ; rba indebted households ’ willingness to draw on these and other savings buffers will have an important bearing on how the economy evolves from here. if borrowers allow these additional savings to run down even to some extent, it will help to sustain their current spending in an environment of higher interest rates and cost - of - living pressures. that is, they can choose to delay some or all of the effect of the cash flow channel of monetary policy on their spending for a time. whether they will do this, however, is uncertain. they may act much like they did in 2017 – 2019, running down their buffers by reducing payments into offset and redraw accounts to well below their historical average during a period of weak income growth. or, borrowers may instead decide to hold onto their additional buffers, or at least run them