RBA Finds Mortgage Holders Resilient, Warns on Private Credit
The RBA's October Financial Stability Review finds most borrowers have strong savings buffers but flags mounting risks in private credit markets.
Australia's financial system has the resilience to absorb a property price correction — but risks are building outside the traditional banking sector.
That is the core message of the Reserve Bank of Australia's October 2026 Financial Stability Review, published on 1 October. While the Review found that most Australian households with mortgages remain well placed to manage more difficult conditions — even if housing prices were to fall sharply — it also identified pockets of stress and warned that global and operational vulnerabilities "continue to mount."
For mortgage holders navigating an elevated rate environment, the report is simultaneously reassuring and sobering.
Savings Buffers Are Holding Strong
Perhaps the most useful number for current mortgage holders is this: the median borrower could cover more than a year of scheduled repayments from offset and redraw accounts at current rates — a stronger buffer than borrowers held before COVID-19.
Only around 2% of variable-rate owner-occupier borrowers have income that falls short of their scheduled repayments plus essential living costs. Most of those could cover the gap from savings for at least six months if spending was limited to essentials.
Arrears have edged higher, as would be expected given the pace of rate increases, but remain near pre-pandemic levels. Borrowers with lower incomes or higher loan-to-value or loan-to-income ratios are showing higher arrears than the broader market — but these borrowers represent a small fraction of overall lending and their arrears have not risen significantly this year.
First-home buyers who entered through the government's 5% Deposit Scheme are also not showing signs of material strain. The RBA's liaison with banks suggests hardship among that cohort remains contained.
These figures predate the RBA's decision on 29 September to lift the cash rate by 25 basis points to 4.6%. Cotality data already shows national home values fell 1.1% in September, leaving them 5.2% below their March 2026 peak. Some additional pressure on arrears through the December quarter is expected.
Private Credit: The Risk Still Smoking
The October Review acknowledged a structural shift in where lending risk now lives. Australian banks are well capitalised and positioned to continue lending even in a downturn, with system-wide risks from non-bank lenders remaining contained by their relatively small size. But the RBA also flagged that threats from private credit and global financial market vulnerabilities are growing.
The concern has a name and a number. Metrics Credit Partners recently froze withdrawals from two wholesale funds holding more than $9 billion. The private credit industry in Australia is estimated at $200 billion in total, of which 40-60% comprises real estate credit. The collapse of Western Sydney developer Bathla in August 2026 — which owed approximately $3.4 billion to more than 40 lenders — gave regulators a concrete case study in how quickly private credit losses can crystallise.
ASIC commissioner Simone Constant told a broker summit in September: "We are now well beyond warnings." RBA Governor Michele Bullock has told a parliamentary inquiry that a serious blow-up in private credit would spill over onto the banks.
For borrowers not directly invested in private credit funds, the risk is indirect. A material disruption in that sector could tighten lending conditions broadly or dampen commercial property values, which would ripple through into residential markets. It is a risk worth monitoring, even if it remains a tail scenario.
The Review also flagged elevated threats from ongoing geopolitical tensions, growing vulnerabilities in global financial markets, advances in artificial intelligence, and critical service provider disruptions as risks that financial institutions need to build resilience against.
What the RBA Is Telling Lenders — and Why It Matters to Borrowers
The RBA was explicit in its message to lenders. While banks have maintained prudent lending practices, the Review stressed that standards "must remain sound in the face of ongoing strong competition in lending." In an environment where lenders are competing hard for new business, the central bank is watching credit discipline carefully.
That competition, however, works in borrowers' favour when it comes to pricing. If your current home loan rate has not been reviewed recently, a refinance comparison is likely worthwhile. Lenders have been actively competing for refinancers, and the gap between a competitive rate and a complacent lender's standard variable rate can be meaningful.
It is also worth regularly checking your borrowing power and understanding how your position has shifted as rates have risen — particularly if you are approaching a fixed-rate expiry or considering an investment property move.
The RBA's broader message is one of measured confidence: Australia's financial system is in reasonably good shape for what lies ahead. But the October Review is clear that the environment demands ongoing vigilance — from lenders, from regulators, and from borrowers who want to stay well positioned as the cycle plays out.