Roy Morgan counts 1.26 million Australian borrowers as extremely at risk of mortgage stress, a record, with the cash rate sitting at a 15-year high. That is almost a third of owner-occupiers with a home loan. It is a modelled number, not a count of missed repayments. But it points at the place where the next leg of the housing story could turn, and that is worth working through carefully.
Here is the puzzle. Stress on paper does not become forced selling on its own. Something has to break the chain, and the chain has several links.
Why a stress score is not an arrears figure
Roy Morgan’s measure estimates how much of a household’s income is eaten by repayments, then compares that with a benchmark of what households can sustain. Households over the line are labelled at risk. Those far over it are labelled extremely at risk.
That is useful, because it captures squeeze before it shows up in lender data. It is also blunt. It does not see savings buffers, offset balances, a partner picking up extra shifts or a parent quietly covering a few hundred dollars a month. Plenty of borrowers modelled as stretched will keep paying by cutting spending hard.
For a reader, the takeaway is simple: treat the figure as a pressure gauge, not a casualty list. Our mortgage stress and arrears guide explains how the two differ and why lenders watch them on different timelines.
Where forced selling would show up first
If stress does tip into distress, it will not land evenly. Three groups look most exposed.
- Recent buyers with thin equity. Those who bought near the peak with small deposits have the least room to sell their way out. A modest price fall leaves them with little or nothing after costs.
- Borrowers coming off low fixed rates. Anyone who locked in cheaply during the pandemic era and has since rolled to a variable or new fixed rate has had the biggest jump in repayments. The shock arrives in a single step, not gradually.
- Outer-suburban households with large loans relative to income. These borrowers often carry long commutes, school costs and car loans on top of the mortgage. Our look at who is squeezed in Sydney and Melbourne covers how that plays out by suburb.
The sequence matters. Arrears usually rise first, then hardship requests to lenders, then listings by owners who decide to sell before the bank forces the issue. Listings are the last signal, not the first.
The part that is easy to overlook: lenders have options
Banks do not want to be sellers of last resort. Hardship arrangements, temporary interest-only periods and loan term extensions all push the pain out in time. These tools have kept arrears lower than stress scores would suggest in earlier cycles.
They have a limit, though. An extension is relief only if income recovers or rates fall before patience runs out. If rates keep climbing, the relief is borrowed time. That is the catch.
A feedback loop for the RBA
Roy Morgan models a path in which the cash rate climbs by two further moves to 5.1%. Treat that as a scenario, not a forecast. But it raises a policy question that does not get asked enough.
The RBA raises rates to slow demand. Higher repayments squeeze household budgets, spending slows and inflation eases. That is the design. The risk is that the squeeze stops being a gentle brake and becomes a source of financial instability: rising arrears, tighter lending standards, falling prices, weaker confidence.
At some point the central bank has to weigh the inflation it is chasing against the damage it is causing to the borrowers who carry the transmission. That is why every new arrears reading matters beyond the households in it. Watch how the board describes household balance sheets in its next statement. A shift in tone would tell you more than the rate decision itself.
Key numbers
- 1.26 million borrowers modelled as extremely at risk, a record
- Close to a third of owner-occupier mortgage holders rated at risk
- Cash rate at a 15-year high, with Roy Morgan modelling a path to 5.1%
What would change the picture
Three things would soften this outlook:
- Wage growth outpacing repayment growth for a sustained period.
- Inflation falling faster than expected, easing pressure for further hikes.
- Stable or rising prices, which keep stretched owners able to sell on their own terms.
The reverse is also true. Rising unemployment is the real trigger. Households can absorb higher repayments for a long time. They struggle when income stops.
What to do if you are on the stretched side
If you carry a variable-rate loan, run your repayment at one and two percentage points higher and check you can cover it from take-home pay without touching savings. If you cannot, call your lender before you miss a payment, not after. Early hardship conversations get better outcomes than late ones. A broker can also compare whether refinancing helps, though a lower rate elsewhere still needs to clear fees and serviceability checks.
For wider context on the latest reading, see our piece on how stretched borrowers number 1.75 million on a broader measure, which shows how the headline shifts depending on the definition used.
The bottom line: record stress is a warning, not a verdict. Forced selling needs a trigger, and the one to watch is jobs, not rates alone. Want the weekly signal on rates and credit? Subscribe to the newsletter.
General info, not financial advice.
