Most Australian mortgage holders appear able to manage ongoing cost pressures, but that does not mean every household is comfortable or safe from hardship. In its October 2026 Financial Stability Review, the Reserve Bank of Australia (RBA) estimates that around 2 per cent of variable-rate owner-occupier borrowers had cash-flow shortfalls in the first half of 2026. Lower-income borrowers were more likely to be affected, and arrears had risen somewhat while remaining around pre-pandemic levels.
What the RBA means by mortgage stress
There is no single measure that captures every kind of mortgage pressure. A cash-flow shortfall means a household’s income is insufficient to cover scheduled mortgage payments and essential expenses. Arrears indicate missed or late payments; negative equity means the loan balance exceeds the property’s value; and higher risk of default is a separate assessment of the chance a borrower may fail to repay.
Those measures are not interchangeable. A household can have a cash-flow deficit but keep making payments using savings, while a borrower in negative equity may still meet every repayment. The RBA’s estimate that around 2 per cent of variable-rate owner-occupier borrowers had shortfalls in the first half of 2026 is not a share of every Australian household or every type of mortgage. RBA, October 2026.
Why many borrowers have room to absorb pressure
Offset and redraw buffers
RBA estimates indicate that the median mortgagor had offset and redraw buffers sufficient to cover over a year of scheduled mortgage payments at current interest rates. This is a median, not a promise that each borrower has that much available. A household’s accessible buffer depends on its own savings and loan arrangements.
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Income growth and lending safeguards
The RBA points to stronger income growth since 2023–24 and more demanding servicing-capacity requirements for recent borrowers as factors supporting resilience. APRA’s serviceability buffer requires lenders to assess whether a prospective borrower could make repayments at a rate 3 percentage points above the borrower’s current loan rate. That is a loan-approval stress test, not a prediction that the borrower’s rate will rise by that amount, and it cannot guarantee future financial security. RBA, October 2026.
Who is more exposed to hardship?
Pressure is uneven. Lower-income borrowers and borrowers with high loan-to-value or loan-to-income ratios have higher arrears rates than other groups, although these cohorts remain a small share of all borrowers. Cost pressures have increased, particularly for lower-income households, and the share of variable-rate owner-occupier borrowers with shortfalls rose a little in the first half of 2026.
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The aggregate picture therefore should not be read as an individual forecast. A household’s ability to keep up depends on its income, essential costs, repayment schedule, available buffers and financial circumstances.
What if Australian house prices fall further?
Less than 1 per cent of borrowers were estimated to be in negative equity in the RBA’s assessment. In a hypothetical uniform further 20 per cent fall in house prices, around 5 per cent of mortgages would be in negative equity. That is a stress illustration, not the Bank’s central forecast; house prices had declined in recent months and downside risks remained. RBA, October 2026.
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Negative equity is not, on its own, a trigger for default: the borrower may still be able to service the loan. Most households have equity buffers after several years of rising prices, and the RBA says the vast majority of borrowers who sell would have enough equity to repay their loan in full. Selling can nevertheless be disruptive and difficult, not an easy fix for financial pressure. Most Australian mortgages are full recourse, which also helps explain why borrowers often continue paying when they can.
How severe is the RBA’s adverse scenario?
The RBA tested a very adverse illustrative scenario, not a prediction, in which unemployment rises to 6.3 per cent, inflation to 7 per cent and the cash rate to 5.6 per cent. Under those assumptions, around 5 per cent of mortgagors are estimated to be at higher risk of default—only a little above the 2023 peak. The outcome is a scenario-based estimate and should not be treated as the expected share in ordinary conditions. RBA, October 2026.
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- BECOME AN INVALUABLE RESOURCE: To your clients by reducing their confusion and uncertainty; ensuring they are able to make a purchase offer; knowing they can afford the down payment; and determining which is the right loan for them. Date-math for listings and contracts too. Comes with a protective slide cover, quick reference guide, pocket user's guide, and long-life battery
Even within that higher-risk group, outcomes vary: the RBA reports that around two-thirds would have insufficient income to meet expenses but enough buffers to cover debt service and essential expenses for at least six months. That distinction is why a cash-flow shortfall does not automatically mean arrears or default.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What borrowers can take from the findings
- Look at your own cash flow, not just the national average. Compare income with scheduled repayments and essential expenses.
- Distinguish a shortfall from missed payments. Savings or offset and redraw funds may bridge a gap, but their availability varies by household.
- Treat equity and repayment capacity as different safeguards. A home’s value may provide a buffer in a sale, while the ability to meet repayments depends on cash flow.
- Seek help early if payments are becoming difficult. The National Debt Helpline is an Australian support resource; enquiries increased modestly in the first half of 2026, according to the RBA.
The RBA’s institutional conclusion is: “Overall, most household borrowers are expected to remain resilient under a range of adverse scenarios.” Reserve Bank of Australia, Financial Stability Review, October 2026.
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