Low-Deposit Loans at Record High as Arrears Rise
New APRA data shows 4.31% of new mortgages were written with just a 5% deposit in the June quarter, as 90-day arrears climb above the historical average.
New data from APRA shows the Australian home loan market is under growing stress, with low-deposit lending at a fresh record, mortgage arrears rising for a second consecutive quarter, and refinancing through serviceability exceptions surging to an all-time high. MPA Australia reports on the full data set from APRA's June 2026 quarterly property exposures statistics.
Low-Deposit Lending at a Record High
Owner-occupier loans written with a deposit of 5 per cent or less accounted for 4.31 per cent of all new lending in the June quarter — a fresh record high.
The surge follows the federal government's decision to uncap its Home Guarantee Scheme in October 2025. Since then, a total of $15.6 billion in low-deposit loans have been written nationwide. That is a significant pool of borrowers who have entered the market with minimal equity — and they have done so just as values in Australia's two largest cities have turned sharply lower.
Separate analysis from Cotality found that one in two homes purchased in Sydney and Melbourne over the past year would now sell for less than their purchase price. Dwelling values in Sydney have fallen 7.7 per cent from their April 2026 peak, and 6.9 per cent in Melbourne.
RBA assistant governor (financial system) Brad Jones, appearing before parliament on Friday 18 September, put the context plainly: the run-up in Australian housing prices ahead of the current correction exceeded that of comparable advanced economies. "It's been a very material run-up," Jones said, noting 5 to 6 per cent declines in Sydney and Melbourne and 1 to 2 per cent in other states.
For a borrower who purchased in Sydney at the April peak with a 5 per cent deposit, a 7.7 per cent value decline since then means their equity could already be negative. That is a precarious position to be in heading into a potential fourth rate rise this year.
Arrears Are Rising and Offset Buffers Are Being Drawn Down
APRA's data shows mortgage stress is building across the broader market. Mortgages in arrears by 90 days or more now total $25.9 billion — equivalent to 1.01 per cent of all mortgages. That sits above the historical average of 0.93 per cent recorded since 2019, and marks a second consecutive quarterly rise. Loans that are 30 to 89 days past due have also risen for a second straight quarter, to 0.54 per cent of all credit outstanding.
These increases follow three RBA cash rate hikes so far in 2026 and reflect the sustained repayment pressure that has been building since the rate-rise cycle began.
Money held in offset accounts fell by $8.6 billion in the June quarter — the largest quarterly drop in dollar terms on record. The June quarter typically sees elevated EOFY spending, so seasonal effects are partly responsible. Offset balances overall remain near record highs at $340.5 billion, up 12.8 per cent on a year earlier — meaning most borrowers still hold substantial buffers. But the direction of travel warrants attention as further rate pressure looks likely.
Interest-only lending also climbed, reaching 24 per cent of new mortgages in the June quarter, up from 21 per cent a year earlier. This remains well below the 46 per cent peak that prompted APRA to intervene in 2015. Still, the rise signals that a growing share of borrowers are choosing to manage immediate cash flow rather than reduce principal — a reasonable short-term strategy, but one that delays equity building and extends loan exposure.
The Refinancing Data Is Telling Its Own Story
One of the most striking figures in the APRA release is the explosion in refinancing approved as an exception to standard serviceability tests. In the June quarter, $11.6 billion in loans — or 5.8 per cent of all new lending — were processed under exception rules. That is a record, and it represents an increase of almost 400 per cent compared with pre-pandemic levels.
Serviceability exceptions exist for borrowers who cannot demonstrate they can service a loan at the standard test rate (3 percentage points above the loan's actual rate) but who are otherwise creditworthy — typically because their existing loan was written at a lower rate and the gap has grown. The near-400 per cent surge in exception refinancing reflects both the scale of repayment pressure and the large number of borrowers actively seeking relief through a lower-rate product.
If you are on a variable rate you have not reviewed this year, or a fixed rate that has recently expired, you may qualify for a refinance — even if you are concerned about serviceability hurdles. Use our refinance savings calculator to get an initial read on what switching could mean for your monthly repayments, and explore the refinance hub to compare current offers.
What Borrowers Should Take from This Data
The APRA data paints a picture of a market dividing into two groups. Borrowers who entered before the rate-rise cycle with large offset balances, substantial equity, and principal-and-interest loans are, in most cases, sitting securely. Borrowers who entered more recently — particularly those who used a low-deposit scheme, took interest-only terms, or have not refinanced since rates began rising — face a more difficult environment.
For first home buyers considering entry with a small deposit under the Home Guarantee Scheme, the record low-deposit numbers are a useful reality check. Explore first home buyer loan options carefully and stress-test your position against the scenario where values continue to fall.
For borrowers already in the market, checking the cheapest available home loan rates before the next rate decision on 29 September is a practical step that could save you money regardless of which way the RBA moves.
MPA Australia reports on the full APRA Quarterly ADI Property Exposures data for the June 2026 quarter, including offset balances, arrears, and serviceability exception trends.