Mortgage Arrears Stay Low as Cash Rate Hits 4.6%
The Reserve Bank finds most Australian borrowers still have strong buffers after the September rate rise, though home values have fallen 5.2% since March.
The Reserve Bank of Australia raised the cash rate by 25 basis points on 29 September, taking it to 4.6%. For borrowers already stretched by two years of rapid rate rises, the question on every broker's lips is the same: how close to the edge are Australian households?
According to the Reserve Bank's Financial Stability Review, the short answer is: not as close as the headlines might suggest — but that gap is narrowing. MPA Australia reports the central bank's assessment found that most borrowers, including households and businesses, are "well positioned to manage through a period of slowing economic growth and declining housing prices". Those words carry more weight now that prices are falling in earnest, with Cotality's latest data showing national home values slipped 1.1% in September, leaving them 5.2% below their March 2026 peak.
Arrears Are Rising, But From a Low Base
The Financial Stability Review's verdict on mortgage delinquencies was measured: "Arrears rates remain low despite a recent pick-up." That framing matters. A rise in arrears sounds alarming, but the starting point here was record-low territory, meaning the shift back towards more normal levels does not indicate systemic distress.
The pockets of stress are concentrated where you'd expect them: borrowers on lower incomes, and those with high loan-to-value or loan-to-income ratios. Even there, the review found that arrears had not risen significantly over 2026, and these borrowers account for a small share of the overall market.
First-home buyers are not showing signs of strain either. The RBA's liaison with banks indicates that hardship among participants in the government's 5% Deposit Scheme remains contained.
What's holding the system together? Offset accounts and redraw balances, primarily. The RBA estimates the median borrower could meet more than a year of scheduled repayments from their offset or redraw account at current interest rates. That places most mortgage holders in a substantially better position than they were before COVID-19, when those buffers were thinner.
There is a narrower tail of concern. The Reserve Bank estimates around 2% of variable-rate owner-occupier borrowers have income that falls short of their scheduled repayments plus essential living expenses. Critically, most of those borrowers could cover the gap from savings for at least six months if they tightened their spending to essentials. That is a meaningful cushion, but it is not unlimited — and it predates the September rate rise.
What Borrowers Should Do Now
The review's data cut-off was 25 September — four days before the RBA's decision to lift the cash rate to 4.6%. That means the picture it paints does not yet reflect the latest increase. Borrowers who were just inside the buffer zone before 29 September should treat the September data as a pre-hike baseline, not a current assessment.
Real disposable income per person has already slipped over the first half of 2026, and calls to the National Debt Helpline rose modestly over the same period. These are early stress signals, not crisis indicators, but they underline why this is the right moment to review your loan structure.
The first practical step is to check your offset or redraw balance against your current repayment schedule. If the buffer is thin — less than six months of repayments — it is worth considering whether meaningful savings are available. With national home values 5.2% off their March peak, refinancing will depend on where your loan-to-value ratio currently sits. If you built up equity during the 2024–2025 run-up, you may still have room to compare refinance options and potentially bring your rate down.
Borrowers whose equity has thinned should be cautious about chasing a refinance without first modelling the costs. Calculating your repayments at the current rate and comparing it with what you'd pay on a competitive variable product is a useful first step before approaching any lender.
For investors, the RBA's messaging around credit discipline is pointed. The central bank stressed that lending standards "must remain sound in the face of ongoing strong competition in lending", warning that resilience should not be eroded at a time when shocks are more likely. Banks are being pushed to hold the line on serviceability buffers — which means the lending environment is likely to stay stricter than the pre-2022 norm, regardless of rate movements.
The RBA identified offshore developments — sovereign debt pressures and growing cyber risks — as the main threats to broader financial stability, and assessed domestic cyclical risks as not systemic at this stage. That is a relatively reassuring backstop, but it does not change what individual borrowers need to do: understand your buffers, review your rate, and talk to a broker if you are not sure where you stand.
For the full picture, see MPA Australia's report on the Reserve Bank's Financial Stability Review.