Australian mortgage arrears ticked slightly higher in the March quarter but remain historically low, according to APRA data.
The share of loans classified as overdue or impaired rose from 1.64% in Q4 2024 to 1.68% in Q1 2025.
While the increase is modest, arrears remain below the recent pandemic-era high of 1.86% recorded in Q2 2020.
Arrears figures include loans that are 30 to 89 days overdue, as well as non-performing loans – where the borrower is 90 days or more past due or is deemed unlikely to meet obligations without lender intervention.
The Reserve Bank of Australia’s latest Financial Stability Review provides a deeper look at borrower stress levels. It found that while “highly leveraged borrowers and lower-income households tend to have higher arrears rates, even in these categories, arrears are generally low and trending lower.”
Borrowers with loan-to-valuation ratios (LVRs) of 80% or higher saw arrears peak around 2.5% in 2024 but are now falling. Similarly, mortgage arrears for borrowers with a loan-to-income (LTI) ratio above four reached roughly 1.5%, but this too is on the decline.
Strong lending policies remain a major factor in the resilience of Australian borrowers.
Prudential regulation has helped to prevent risky borrowing, with the portion of new mortgages flagged as “risky” holding low.
In Q1 2025:
The mortgage serviceability buffer has also helped reduce default risk.
Since October 2021, banks have been required to assess borrowers' ability to repay at rates three percentage points above current mortgage levels. Although actual rates have risen by more than that since 2022, “there has been no sign from APRA that the serviceability buffer will be lowered.”
RBA has previously argued that for mortgage defaults to rise meaningfully, a “double trigger” is typically required: a borrower must be unable to repay and also in negative equity.
To date, neither condition has broadly materialised. Labour market conditions remain strong, with unemployment at 4.1% in May 2025 and underemployment near multi-decade lows. Meanwhile, the share of borrowers in negative equity is still tiny.
According to the RBA, “less than 1% of households are experiencing a negative equity situation.”
That means most borrowers struggling to meet repayments could still sell their home and repay their debt before falling into default.
Debt servicing costs have increased substantially. Between the low and high points of the current rate cycle, a borrower with a $750,000 mortgage has seen monthly repayments increase by over $1,550, depending on loan type and structure.
Many households have managed this shift through a combination of factors:
In the ASIC v Westpac hearing, Justice Nye Perram famously said: “I may eat Wagyu beef everyday washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare.”
This metaphor continues to resonate as households scale back non-essential spending to maintain mortgage commitments.
With the RBA expected to lower interest rates further in 2025, mortgage servicing pressure should ease gradually. At the same time, rising national housing values are likely to keep negative equity to a minimum.
“Overall, it’s likely mortgage arrears will trend lower from here as mortgage rates continue to reduce and cost of living pressures ease further,” the RBA said. “With housing values once again on a broad-based rise, instances of negative equity are expected to remain a tiny portion of Australian housing stock, providing further resilience to default.”
