By
As more Australian mortgage holders regain control of their household budgets, the Reserve Bank of Australia (RBA) has warned that banks must continue to lend cautiously to avoid fuelling new vulnerabilities in the housing market.
In its latest Financial Stability Review released Thursday, the RBA said the share of borrowers spending more than they earn had fallen to 3% mortgage holders with variable-rate loans. That’s an improvement from mid-2024, when one in 20 were in negative cashflow—the lowest level since 2022.
Despite the recovery, the central bank said the broader economy remained exposed to risks, including slowing trade with China, household debt pressures, and potential market disruptions from recent tariff increases introduced by the United States.
“The share of households who have fallen behind on their mortgages has broadly stabilised at pre-pandemic levels,” the RBA noted. However, the report also pointed to Victoria as the state facing the most significant mortgage stress, with larger loans and smaller savings buffers contributing to the strain.
The review reiterated the importance of lending safeguards—such as the serviceability buffer—in maintaining housing market stability. It warned that lowering these protections could lead to excessive borrowing and inflated property prices, especially if interest rates continue to fall.
The opposition Coalition has proposed relaxing lending rules if elected, suggesting the buffer could be cut to improve housing affordability.
Although the RBA believes Australian banks are equipped to weather an economic downturn—“the banking sector is well placed to manage losses and keep lending if there was a severe economic downturn,” the report stated—it urged financial institutions to remain cautious about borrower risk and loan volumes.
The report also flagged global trade tensions as a potential headwind. Drafted before the RBA board’s decision to hold the cash rate at 4.1% and the United States’ announcement of a 10% tariff on Australian imports, it warned that “rapid shifts in trade and fiscal policies could alter the trajectory of global growth and undo some of the progress on inflation.”
Victoria was the only state where the share of households more than 90 days behind on debt repayments had not seen a notable decline. If current trends continue, the share of borrowers spending beyond their means is expected to fall further to 2% by the end of 2025.
