Mortgage arrears in Australia remain at historically low levels, and experts anticipate they will continue to decline as interest rate cuts reduce pressure on borrowers, according to the latest data from property analytics firm Cotality.
Arrears Edge Higher—But Still Historically Low
Data from the March 2024 quarter shows a slight increase in mortgage arrears, rising from 1.64% to 1.68%, based on figures from the prudential regulator. Despite this minor uptick, mortgage arrears remain well below levels seen during the pandemic and are still lower than international benchmarks.
Cotality, formerly CoreLogic, noted that borrowers with high loan-to-value ratios (LVRs) and loan-to-income ratios saw peak arrears in early 2024—around 2.5% for high LVRs and 1.5% for high loan-to-income borrowers. Both groups are now trending lower.
Why Are Arrears Staying So Low?
Cotality’s research director, Tim Lawless, attributes the ongoing stability to a combination of strong employment, tighter lending standards, and minimal risky lending activity. Most significantly, less than 1% of mortgage holders are in a negative equity position. This means that households facing financial strain are typically able to sell their property before defaulting, preventing broader mortgage stress.
The strengthened mortgage serviceability buffer—raised from 2.5 to 3.0 percentage points in October 2021—has also played a key role in shielding borrowers from default risk, despite mortgage rates climbing more than 3 percentage points since the ultra-low interest rate period of 2020–22.
Brokers: A Key Support System for At-Risk Borrowers
Mortgage brokers remain an important line of defence for borrowers experiencing repayment stress. Cotality economist Kaytlin Ezzy said brokers can offer tailored guidance to struggling borrowers by explaining available options and steering clients toward financially sustainable outcomes.
Ezzy emphasized that early broker intervention could help prevent borrowers from falling into arrears by restructuring loans or recommending alternative financial strategies.
What to Expect as Rates Continue Falling
Looking ahead, Cotality expects arrears to decline further as the Reserve Bank of Australia continues its rate-cutting cycle into 2025. With inflation now within the RBA’s target band, the cost-of-living burden is expected to ease, offering some relief to household budgets.
Ezzy noted that falling interest rates and rising property values should reduce the likelihood of borrowers entering negative equity, which in turn supports overall market resilience.
Borrowers Adjust Spending to Prioritise Debt
Cotality’s analysis highlights how many households have embraced the so-called “wagyu and shiraz” scenario—cutting back on discretionary spending in order to meet debt obligations. This shift in spending behaviour, combined with strong employment and higher home equity, has helped prevent a surge in arrears even in a high-interest environment.
Tim Lawless summed up the outlook, stating: “It’s likely mortgage arrears will trend lower from here as mortgage rates continue to reduce and cost-of-living pressures ease further. 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.”
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