The Reserve Bank of Australia said fewer than 1% of borrowers are in negative equity, according to its half-yearly Financial Stability Review, and modelling indicates that even a 20% fall in housing prices from current levels would push only around 5% of mortgages underwater. The RBA noted that downside risks to housing prices are currently elevated, given previous strong price growth and high prices relative to fundamentals such as incomes and high user costs.
Arrears rates generally remained low, with lenders maintaining high standards since APRA introduced a 3% serviceability buffer. The review said home loan defaults typically occur when negative equity coincides with the borrower's inability to service the loan.
Around 40% of households in the lowest income quartile are renters, while only 7% are owner-occupier mortgagors. HILDA data, available only to 2022, shows cash flow deficits affected roughly 15% of renters but only roughly 4% of mortgage holders.
The RBA acknowledged stress exists in pockets of the household and business sectors but said overall resilience across both sectors remains sound. Company insolvency totals had returned to roughly average levels over the past year, though hospitality, construction and transport sectors continue to record elevated rates.
Of companies that went insolvent during the 2024/25 financial year, roughly 75% employed fewer than 20 full-time staff, and roughly 70% owed nothing to secured creditors. The RBA said risks from business insolvencies remain contained because they involve small companies with little bank debt, limiting bank exposure.
The review identified global financial infrastructure as a key concern, noting that increasing interconnection across systems, driven by rapid technological change, exposes international markets to heightened operational risk. The RBA flagged that prolonged outages could have serious consequences for payments infrastructure and the flow of money, with risks arising from technology failures, malicious actors or utility grid disruptions. It also identified high sovereign debt internationally, elevated asset prices and increased use of borrowed funds among creditors as risks to the global financial system.
Borrowers who hold mortgages are assessed by the RBA as having sufficient cash flow and savings to absorb market shocks, even in a significant housing price downturn. The RBA lifted interest rates by 25 basis points, marking the fourth rate rise this year, taking the cash rate to 4.6%, a 15-year high that affects borrowing costs for households and businesses.
Official statements: Reserve Bank of Australia
Reporting: The Nightly
Written by Pick & Scroll News from the reporting and documents linked above.
