Mortgage arrears are not rising. That is the headline number, and it is accurate. A credit bureau’s latest monthly report put home loan arrears of 30 days or more at 0.67% in July, three basis points lower than a year earlier and roughly unchanged across 2026.
The trouble is what sits around that number. Unemployment hit 4.7% in September after 39,300 jobs disappeared. The RBA has lifted the cash rate four times this year to 4.6%, and a fifth rise to 4.85% is forecast for 3 November. Consumer sentiment has dropped to 68.0. Arrears are a rear-view mirror, and the road ahead looks different.
Why mortgage arrears move last
Arrears are a lagging indicator. A borrower does not miss a repayment the week their hours get cut or their rate resets. They draw down savings, trim spending, tap an offset, put things on a card, and only then fall behind. That sequence can take months.
So flat arrears tell you households have so far absorbed the shock. They do not tell you how much of that buffer is left. If the squeeze is already being funded by savings, the arrears line can stay calm right up until the savings run dry.
Key numbers
- 30+ day mortgage arrears: 0.67% in July, down 3 basis points on a year ago
- Unemployment: 4.7% in September, with 39,300 jobs lost
- Cash rate: 4.6% after four rises this year, 4.85% forecast
- Personal loan arrears: 3.4% in August, up 36 basis points
- Card arrears: 0.81%, easing
The early-warning data is already moving
The same credit bureau saw no material worsening in mortgage or card repayment behaviour. Personal loans tell a different story. Arrears there reached 3.4% in August, up 36 basis points. Personal loans are often the first place stress shows, because they are unsecured and borrowers tend to protect the house before anything else.
Card arrears eased to 0.81%, which cuts the other way. That is a fair counterpoint. Not every stress indicator is flashing red. But when the unsecured product is deteriorating while the secured one holds, that is the pattern you would expect early in a squeeze, not a sign the squeeze is absent.
Which borrowers are likely to go first
No one cohort fails in isolation, but some have thinner margins:
- Recent buyers on large loans. The average owner-occupier loan is now $731,000, up 7.8% on a year ago. Higher balances mean each rate rise bites harder.
- High-multiple borrowers. Lending at very high debt-to-income levels slipped to 5% of new funding, and loans above 90% of the property’s value held at 8%. These are small shares, but they are the borrowers with the least room to move.
- Anyone who lost hours or a job. The labour market is the trigger that turns a tight budget into a missed repayment.
- Borrowers who cannot refinance. Serviceability tests are trapping some households. They may want a better rate but cannot pass the assessment, so they are stuck on what they have.
That last point matters. The usual escape route when repayments rise is to shop around. If the test blocks that exit, borrowers have fewer options before arrears become the only release valve.
Why falling prices change the maths
Weaker house prices matter for a specific reason. When values rise, a stretched borrower can sell and clear the debt. When values fall, especially for those who bought recently with a small deposit, that exit narrows. Equity thins out, and selling may leave a shortfall.
That does not mean forced sales are imminent. It means the safety net under the arrears figure is less reliable than it was a year ago. Our guide to mortgage stress and arrears explains how that chain works in practice, and the broader picture of capital city prices cooling shows how widespread the softening already is.
Demand has already pulled back
Borrowing appetite is falling faster than arrears are rising. One bureau recorded a 19.2% annual fall in home loan demand in September. Banking statistics showed lender mortgage balances growing only 0.3% in September, about half the rate of a year earlier.
The regulator’s June quarter figures looked stronger, with $199.8 billion of new mortgage funding, up 24% on the year. That is the nuance worth holding on to. The June quarter reflects decisions made before the latest rate rises and job losses. The September data reflects the squeeze. Both are true, but they describe different moments.
Two readings of the same flat line
Commentary on this data has split along predictable lines. One reading says flat arrears prove borrowers are coping and the system is resilient. The other says a calm indicator alongside rising unemployment and collapsing demand has often come before stress, and the real question is the lag.
Both have a point. Resilience is real: arrears are lower than a year ago. But resilience is also what you would see in the early months of a squeeze, before buffers run out. The numbers alone cannot settle it. What they can do is tell us what to watch.
What to watch over the next quarter
A few signals will show whether the lag is closing:
- Whether the 3 November rate decision lands as forecast, and how lenders pass it on
- The next unemployment print, and whether job losses continue
- Personal loan arrears, which may keep climbing before mortgages follow
- Arrears in the newer, higher-balance loan cohorts rather than the national average
- Whether more borrowers hit the serviceability wall when trying to refinance
The base case is a gradual drift higher, not a sudden break. The downside is a faster move if job losses accelerate. The upside is that households hold on until rate pressure eases. None of these is certain, and anyone claiming otherwise is guessing.
If you carry a large loan and have been leaning on savings to cover the gap, now is the time to check your buffer and talk to your lender before a repayment slips, rather than after. Subscribe to the newsletter for the next arrears and rates data as it lands.
General info, not financial advice.
