RBA Financial Stability Review: Most Borrowers Still Coping
The RBA's October 2026 Financial Stability Review finds most mortgage holders are managing — but warns global risks are intensifying.
The Reserve Bank of Australia's October 2026 Financial Stability Review delivers a sobering but measured read on the nation's financial health. Released just two days after the RBA raised the cash rate to a 15-year high of 4.60%, the Review's key message is that most Australian mortgage holders are still managing — but that the real threats to financial stability are building offshore, not at home.
As ABC News reports, the Review is the RBA's half-yearly deep-dive into systemic risks across the entire financial system, covering households, businesses, banks and global markets. The October edition arrives against a backdrop of four rate hikes in 2026, a housing downturn tracking toward its worst in decades, and a global environment the RBA describes as one where "threats to international financial stability continue to mount."
How Australian Mortgage Holders Are Holding Up
The domestic picture is more resilient than the headlines might suggest. The RBA estimates that as at end-June 2026, less than 2% of variable-rate owner-occupier mortgage borrowers had a "cash flow shortfall" — meaning their income was insufficient to cover both scheduled mortgage repayments and essential living expenses. The bank acknowledges this figure may edge up to around 2% or slightly above in coming months as the impact of the October hike flows through.
For perspective: during the post-COVID inflation spike in 2023 and 2024, when the cash rate rose rapidly to 4.35%, that proportion was close to 5%. The current reading, even with October's hike factored in, remains well below that peak.
The buffer position also looks encouraging. The median Australian mortgage holder holds offset and/or redraw balances sufficient to cover more than a year of scheduled repayments at current interest rates. That means most households have meaningful time to adjust if circumstances change before missing a payment becomes a real risk.
Negative equity — where a borrower owes more than their home is worth — remains contained at less than 1% of all mortgage borrowers. The RBA modelled a scenario where national house prices fall by 20%: even in that case, only around 5% of mortgages would fall into negative equity, largely because of the substantial price gains that preceded the current downturn.
The bank also ran a "very adverse" stress test — unemployment rising to 6.3% from 4.6% currently, inflation nearly doubling to 7%, and the cash rate climbing a further percentage point to 5.6%. Under that extreme scenario, just 5% of mortgage borrowers would be at "a higher risk of defaulting," comparable to levels seen in 2023. Australian banks, the RBA noted, are well positioned to continue lending even in a downturn.
If you want to understand where your own loan sits in this landscape, checking today's most competitive home loan rates is a useful starting point. The refinance savings calculator can show whether switching would meaningfully improve your position.
The Global Risks the RBA Is Watching Closely
While the domestic outlook is relatively contained, the RBA's concern about the external environment is significant. Two specific risks dominate the Review.
The first is the global AI investment boom and the increasingly opaque financing structures surrounding it. The RBA warned that major AI industry participants have been using off-balance sheet arrangements to fund large projects including data centres, keeping these obligations outside their reported balance sheets. The bank estimates that total financial obligations from these arrangements range from US$1 trillion to US$1.5 trillion. It described some of the financing as "circular" — for example, where chipmakers provided financial support to cloud computing firms that then used those funds to purchase the chipmakers' products. A sudden shift in sentiment toward AI, the RBA warned, could trigger a sharp and disorderly repricing across global equity and credit markets.
The second concern is the global bond market. US hedge fund "repo" debt — short-term borrowing used to take leveraged positions in government bonds — has reached more than US$3 trillion, equivalent to approximately 10% of US annual GDP. The RBA warned this raises "the prospect of increased volatility — and potentially a disruptive sell-off — in core bond markets that are central to the operation of the global financial system." Its assessment was direct: "Australia is unlikely to be immune should international funding conditions abruptly tighten."
In practical terms: if global credit conditions were to tighten suddenly due to an offshore shock, Australian mortgage rates and lending availability could be affected well beyond what domestic inflation data alone would justify. The RBA considers this scenario credible enough to flag explicitly in its half-yearly review.
What This Means for Your Mortgage Strategy
The RBA is not sounding the alarm about imminent widespread mortgage stress. But it is treating the global environment as a genuine and growing risk — one that could change the domestic picture quickly and with limited warning.
For most borrowers on variable rates, the key practical step is maintaining or building repayment buffers now, while employment is stable and income is predictable. Having more than a year's repayments in offset or redraw — as the median borrower currently does — is precisely the kind of cushion that makes a difference when conditions shift unexpectedly.
For anyone considering a major financial decision — buying, refinancing or releasing equity — understanding how your position holds up across a range of rate scenarios matters. The borrowing power calculator can help you stress-test serviceability at current and potentially higher rates. For those looking to reduce rate exposure before conditions change further, reviewing refinancing options now is sensible timing.
The RBA's next rate decision is on 3 November. September CPI and labour force data will be released before then — both are closely watched by brokers and borrowers as indicators of whether a fifth hike this year is warranted.