Where Mortgage Stress Is Hitting Hardest, and What You Can Do About It

Four interest rate rises this year have changed what a lot of Australian mortgages actually cost each month, and new data out this week shows that pressure is landing very unevenly. Some suburbs are coping fine. Others are showing real strain. If you are one of the people feeling it, understanding why it is happening where it is happening can help you work out what to do next.

What the new figures actually show

Credit ratings agency S&P Global Ratings tracks how many home loans are at least a month behind on repayments, a measure usually called arrears. Nationally, that figure sits at 0.85 per cent of loans. But look suburb by suburb and the picture changes a lot. In Pakenham, in Melbourne's outer south east, arrears have climbed to 2.99 per cent, more than three times the national rate. Two Sydney suburbs are not far behind: Constitution Hill in the city's west sits at 2.4 per cent, and Baulkham Hills in the north west at 2.3 per cent.

This is not a brand new trend. Back in September, S&P data already showed arrears above one per cent in several regional areas, including Ballarat and the Hunter Valley in New South Wales, Canberra, and the Illawarra. Pakenham was the standout even then, at 2.88 per cent. The fact that it has kept climbing since tells you the pressure has not let up.

Why some areas are hit so much harder than others

The common thread in these hotspots is large mortgages relative to income, often held by first home buyers. S&P's Erin Kitson put it simply: younger borrowers who bought in these areas tend to carry more debt relative to what they earn, which leaves less room to absorb higher repayments when rates rise. Separate analysis from KPMG found that, state by state, Victorian households devote the largest share of their income to mortgage repayments of anywhere in the country, which helps explain why Victorian postcodes keep showing up in this kind of data. Economist Terry Rawnsley has noted that households under this kind of pressure typically respond in one of a few ways: cutting back on spending, looking for extra income, switching to interest only repayments for a period, or in some cases selling and downsizing.

The bigger picture is more reassuring

It is worth putting this in context rather than reading it as a sign the whole market is in trouble. The Reserve Bank's own Financial Stability Review, released this month, estimates fewer than one per cent of borrowers are currently in negative equity, where a loan balance is higher than the home is worth. Even under a stress test assuming a further twenty per cent fall in prices nationally, a scenario well beyond what has actually happened, only around five per cent of mortgages would move into negative equity, and most of those borrowers would still have enough income and equity to keep servicing their loan rather than being forced to sell. In other words, this is a story about pressure concentrated in specific postcodes and borrower profiles, not a system wide problem.

What this means if repayments are squeezing your budget

If you bought in the last few years with a smaller deposit, in one of the outer growth areas, or with a loan that stretched close to your limit at the time, it is worth taking this seriously before it compounds. One option worth understanding is refinancing to a lower rate with a different lender, though it is not always as simple as it sounds. Lenders are required to assess whether you could still afford a new loan at your proposed rate plus a buffer of three percentage points, a rule set by the banking regulator APRA. That buffer exists to make sure borrowers are not over extended if rates rise again, but it also means that even if a cheaper rate is available elsewhere, you still need to clear that higher serviceability hurdle to switch. A broker can check whether you would pass that test with a particular lender before you go through a full application, which saves time and avoids an unnecessary knock to your credit file.

Other options worth a conversation include restructuring part of your loan, reviewing whether a short period of interest only repayments makes sense for your situation, or simply getting a clear picture of where you stand before deciding anything. None of these are the right answer for everyone, and what works depends entirely on your own numbers. If any of this sounds familiar, the earlier you have that conversation, the more options are usually still on the table.

Figures in this article are drawn from S&P Global Ratings data as reported by The Adviser (9 October 2026) and Australian Community Media regional publications (16 September 2026), KPMG analysis, the Reserve Bank of Australia's Financial Stability Review (October 2026), and APRA's confirmation of its current serviceability buffer settings.

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.