The Reserve Bank Checked the Health of Australian Mortgages. Here's What It Found

If you've seen the headlines about home values falling for six straight months, it's natural to wonder what that actually means for people who already have a mortgage, or are about to take one on. The Reserve Bank asked itself much the same question. Twice a year it publishes a Financial Stability Review, essentially a health check on the banking system and the households who borrow from it, and its October 2026 edition landed this month with a close look at exactly this issue.

The short version is reassuring, though not without some caveats worth understanding.

What the review actually looked at

The Reserve Bank isn't in the business of predicting where prices go next. Its job is to stress test the system, asking what happens to borrowers and lenders if things get harder than expected. This time around, with national home values down 5.2 per cent from their March peak and four cash rate rises behind us this year, the obvious question was whether Australian households could keep meeting their repayments.

To answer it, the Bank looked at how many borrowers are falling behind on payments, how much of a buffer the typical household has built up, and what would happen if prices kept sliding.

Missed payments are still low

Arrears, the industry term for falling behind on loan repayments, have ticked up a little over the past year. But the Reserve Bank's assessment is that they remain close to where they sat before the pandemic, which is a genuinely low level by historical standards. The borrowers doing it hardest tend to be those on lower incomes or who borrowed with a smaller deposit relative to their home's value, and the Bank is clear that this group makes up a small share of all borrowers, not the norm.

Most households have more of a cushion than you'd think

One of the more useful numbers in the review concerns offset and redraw accounts, the extra money many borrowers keep parked against their loan to reduce interest and dip into if needed. The typical, or median, mortgage holder has enough sitting in these accounts to cover more than a year of repayments at current rates. That's a stronger position than households were in before the pandemic, and it's the main reason the Bank believes most borrowers can absorb a stretch of higher rates or softer prices without real distress.

The review did flag one group worth watching: around 2 per cent of borrowers on variable rates don't currently earn enough to cover their loan repayments and essential living costs from income alone. Even within that group, though, most have savings that would carry them for six months or more, which is a meaningfully different situation to being unable to pay at all.

What happens if prices keep falling

This is the part that tends to worry people most, and it's where the numbers are genuinely encouraging. Fewer than 1 per cent of borrowers currently have a loan larger than their home is worth, known as negative equity. The Reserve Bank modelled a genuinely severe scenario, a uniform 20 per cent fall in prices from where they sit now, well beyond anything currently being forecast by housing economists, and found that even then only around 5 per cent of mortgages would tip into negative equity. Crucially, the Bank's view is that most of those borrowers would still have enough equity and income to keep servicing their loan rather than being forced to sell at a loss.

What this means if you're buying, refinancing or just watching your own loan

None of this is a reason to be complacent about rising repayments, and the Reserve Bank's report isn't a guarantee about any individual's situation. But it is a useful reality check against the more alarming headlines. The system as a whole, and the typical borrower within it, is going into this period of softer prices with more savings set aside and lower arrears than history would suggest.

If you're a first home buyer watching prices ease and wondering whether now is a reasonable time to borrow, or an existing borrower wanting a second opinion on how your own loan stacks up against this picture, that's exactly the kind of conversation worth having before you act on a headline rather than your own numbers.

Figures in this article are drawn from the Reserve Bank of Australia's October 2026 Financial Stability Review, released 1 October 2026, including its chapter on the resilience of Australian households.

This article is general information only and does not take into account your personal objectives, financial situation or needs. Please speak with a Claremont Financial broker before making any borrowing decision.