Market Analysis
Australian borrowers are being squeezed from two directions at once. The Reserve Bank lifted the cash rate to 4.60 per cent on 29 September, the highest in 15 years, while national home values have now fallen for six consecutive months. Higher repayments are one pressure. A shrinking equity buffer is the one that tends to catch people by surprise.
The good news is that arrears remain contained. The less comfortable news is that the cushion many owners relied on during the 2024 and 2025 price run is thinner than it was, and it matters most for recent buyers with small deposits, whether they are in Sydney, Perth, Brisbane or Adelaide.
Cotality's Home Value Index recorded a 1.1 per cent fall nationally in September, the sixth straight monthly decline, leaving dwelling values 5.2 per cent below their March 2026 record. PropTrack's index is gentler, showing prices 3.3 per cent below the March peak after a 0.2 per cent monthly fall, but the direction is the same. The two providers use different methodologies, which is why the size of the fall differs.
Sales activity tells a similar story. Preliminary national auction clearance rates came in at 44.4 per cent for the week to 10 October, compared with 67.3 per cent over the same week last year, and Sydney's rate hit a year-to-date low as listings rose. Weak clearance rates usually point to buyers who are constrained by borrowing capacity rather than buyers who have disappeared.
The Australian Bureau of Statistics reported headline CPI of 4.0 per cent for the year to August, up from 3.5 per cent in July, with trimmed mean inflation at 3.6 per cent. Housing costs were the largest contributor, rising 5.7 per cent. Markets have trimmed the odds of a November move to about 20 per cent, but the RBA has been clear it will act again if needed. For variable borrowers, planning for rates to stay at this level into 2027 is the prudent assumption.
To put another 0.25 percentage points in context, here is the monthly cost of a move from 6.34 per cent to 6.59 per cent on a 30-year principal and interest loan:
| Loan balance | Monthly at 6.34% | Monthly at 6.59% | Monthly increase |
|---|---|---|---|
| $500,000 | $3,108 | $3,190 | +$82 |
| $650,000 | $4,040 | $4,147 | +$107 |
| $800,000 | $4,973 | $5,104 | +$131 |
| $1,000,000 | $6,216 | $6,380 | +$164 |
So far, the evidence says most are coping. S&P Global Ratings reports that prime RMBS arrears (30 days or more past due) were 0.85 per cent at June 2026, and it expects overall mortgage performance to hold steady despite falling prices, higher unemployment and sustained high rates. The RBA has estimated that around 2 per cent of variable-rate owner-occupiers have income below scheduled repayments plus essential spending, and that most of those could cover the gap from savings for at least six months. That estimate pre-dates the September increase.
Arrears are a lagging indicator. Households tend to exhaust savings, cut spending and work extra hours long before they miss a repayment, so low arrears today do not mean low stress today.
Consider a buyer who purchased a $1,000,000 property in 2025 with an $800,000 loan, an 80 per cent LVR. If values have fallen by the national 5.2 per cent measured by Cotality, the property is now worth about $948,000 and the LVR on an unchanged balance has risen to roughly 84.4 per cent. Nothing has gone wrong with the loan, but the borrower now sits above the 80 per cent threshold that many lenders use for their best pricing and their lowest-cost refinance pathway.
The effect is larger where the fall has been steeper, such as the upper end of the Sydney market, and for first home buyers who entered at 90 or 95 per cent LVR with the help of a guarantee. Buyers in markets that have held up better, including Darwin, are less exposed.
This is general information only, but there are sensible checks any borrower can make:
Know your current LVR. Use a recent automated valuation and your current loan balance. Tracking it quarterly is enough.
Review your rate against the market. A rate that was competitive a year ago may now sit well above what new customers are offered. Even 0.25 per cent on $650,000 is roughly $1,200 a year.
Use your offset or redraw. Every dollar kept in an offset account reduces interest charged and doubles as a liquidity buffer.
Talk to your lender early. If cash flow is tight, hardship options are far easier to arrange before arrears appear.
Model fixed, variable and interest-only combinations side by side and see the effect on your monthly repayment.
Your lender does not reprice or call in a performing loan simply because the value falls. The practical effect is on your loan to value ratio (LVR). A higher LVR can push you out of the best rate tiers, rule out some lenders when you refinance, and in some cases mean lenders ask for lenders mortgage insurance if you borrow more. If you keep making repayments, the loan continues on its existing terms.
In most cases yes, provided your loan is still below the lender's maximum LVR, usually 80 per cent for the sharpest rates and up to 90 or 95 per cent with LMI. Lenders order a fresh valuation, so a falling market can reduce the available options. Starting the conversation early, before the LVR slips further, gives you more lenders to choose from.
Contact your lender and ask about hardship options before you miss a payment, and speak to a broker about whether restructuring, extending the term or refinancing could lower the repayment. Early action keeps your credit file clean and preserves choice. A broker can model the options side by side, and the National Debt Helpline (1800 007 007) offers free, independent support.
Disclaimer: This article is general information only and does not constitute financial, mortgage or credit advice. It does not take into account your objectives, financial situation or needs. Figures are drawn from Cotality, PropTrack, the ABS, the RBA and S&P Global Ratings as reported in October 2026, and repayment examples are illustrative. Speak with a qualified professional before making changes to your loan.
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