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Kooky
Builder of Shaka, the payment router that pays every agent their commission on closing date.
About Kooky and Shaka →About 2 per cent of owner-occupiers with a variable-rate home loan are spending more on essentials and repayments than they earn, the Reserve Bank estimates in its Financial Stability Review, published on Thursday 1 October 2026. The share rose a little over the first half of the year and the Bank describes it as still relatively low. The review also finds that the share of housing loans more than three months behind has increased a little in 2026 and remains around its level before the pandemic.
The review appeared two days after the Monetary Policy Board lifted the cash rate to 4.60 per cent, the fourth increase of the year. Its chapter on households answers the question that decision raises for lenders and borrowers alike: how much more can households with a mortgage absorb? The Bank's answer is that most have room, a small group has very little, and the outcome for that group depends more on jobs than on rates.
Reserve Bank of Australia, Financial Stability Review, October 2026, chapter 2, published 1 October 2026. The shortfall and scenario figures are the Bank's estimates.
What a cash flow shortfall means
The Reserve Bank estimates this measure from data on individual loans and on household budgets. A borrower is in a cash flow shortfall when income is not enough to cover essential living costs and the scheduled mortgage repayment together. It does not mean the borrower has missed a payment. It means the gap is being filled from somewhere else: savings, money held in an offset account or redraw, extra work, or cuts to spending that the survey counts as essential.
At about 2 per cent, that is one variable-rate owner-occupier in 50. The review says the share is projected to stay around its current level, a little under 2 per cent, for some time.
Related readAfter the June hold: what a 4.35 per cent cash rate costs borrowersOne reason the number is not larger after four rate increases is that the borrowers under most pressure are a moving group: some sell, some refinance, some reach an arrangement with their lender, and each of those takes them out of the count. Another is the reserve of money paid ahead, which the review measures separately.
The limits of the estimate are worth stating. It covers owner-occupiers on variable rates, the bulk of borrowers but not all. It was prepared before the increase of 29 September takes effect on repayments. And it is a national figure; the review gives no breakdown for Queensland.
Arrears and hardship: up a little, from a low base
The review's language on arrears is measured. The share of housing loans more than three months behind on repayments has increased a little over the year to date and remains around pre-pandemic levels.
The Bank looks separately at the borrowers it regards as more vulnerable: those on lower incomes, and those who borrowed a large amount relative to their income or to the value of the home. Arrears are higher in those groups, as would be expected, but the review says they have not picked up significantly since the start of the year. Arrears among first home buyers remain low.
On hardship, the review says the share of loans in formal hardship arrangements has increased but remains low.
These findings line up with the figures published by others over the past two months. The Australian Prudential Regulation Authority reported on 17 September that 1.01 per cent of home loans at banks were non-performing in June. Commonwealth Bank reported on 12 August that its home loans 90 days or more behind rose from 0.63 per cent in December to 0.73 per cent in June, and that it made more than 147,000 payment arrangements in the year. S&P Global Ratings put Queensland's prime arrears rate, on a wider 30-day measure, at 0.55 per cent in June, the lowest of the large states, against 0.85 per cent nationally.
Related readOffset balances drop by a record $8.6 billion as loan arrears climbThe buffers behind the loans
The reason a rise in repayments has not become a rise in defaults is the money borrowers have paid ahead. The review estimates that the median borrower holds enough in offset and redraw to cover more than a year of scheduled mortgage payments at current interest rates. It describes that as a stronger position than before the pandemic.
It also addresses whether those buffers are being run down. The Bank says there has not been a meaningful increase in the share of borrowers who are persistently drawing on them.
That finding needs to be read beside APRA's. The regulator's June quarter figures, as analysed by the comparison site Canstar, showed total offset balances falling by $8.6 billion in three months, a record fall in dollar terms, after growing by 12.8 per cent over the year. The two are not in conflict. The total can dip in one quarter, for seasonal reasons or because many households each draw a little, without a larger share of households drawing down month after month, which is the pattern that signals distress.
A median is the middle of a range, and the range is wide. Half of borrowers hold more than a year of repayments in reserve; the other half hold less, and some hold almost nothing. Buffers are built over time, so they are thinnest among the newest borrowers. That is the same group that took the largest loans.
The typical borrower's reserve is not the newest borrower's reserve
A median of more than a year of repayments in offset and redraw describes the middle borrower. Someone who bought in the past year or two with a small deposit has had little time to pay ahead and may hold only weeks of repayments.
The severe scenario, and the loans being written now
The review tests what would happen in a much worse economy. The scenario is not a forecast. It combines an unemployment rate of 6.3 per cent, inflation of 7 per cent and a cash rate of 5.6 per cent, a full percentage point above the present level.
Related readAPRA keeps the 3-point home loan buffer as rates and costs climb| Measure | Current assessment | Severe scenario |
|---|---|---|
| Cash rate | 4.60% | 5.6% |
| Unemployment rate | Not stated in the chapter | 6.3% |
| Borrowers in difficulty | About 2% in cash flow shortfall | About 5% at higher risk of default |
| Loans in negative equity | Under 1% | About 5%, if prices fell 20% |
Reserve Bank of Australia, Financial Stability Review, October 2026. The two rows on borrowers use different measures and are shown side by side for scale, not as a like-for-like comparison.
In that scenario the Bank estimates that the share of mortgage holders at higher risk of defaulting would rise to around 5 per cent. If housing prices also fell by 20 per cent, around 5 per cent of mortgages would be in negative equity, meaning the debt exceeds the value of the home. The review's point is that even then most borrowers would retain equity, because of how far prices rose beforehand, and would be able to sell and repay if they had to.
For the banks, the review concludes that the amount and quality of capital in the system mean they could absorb losses from a severe downturn while continuing to lend.
The ingredient that does the damage in the scenario is unemployment. A household can usually adjust to a higher repayment by spending less. It cannot adjust to the loss of an income in the same way, which is why the Bank, like the ratings agencies, treats the labour market as the thing to watch.
The review also looks forward, at the loans being written now. It says lending standards have remained sound in recent years despite strong competition among lenders.
Two measures of riskier lending get specific mention. The share of new lending at high loan-to-value ratios has increased since the Australian Government's 5% Deposit Scheme was widened in October 2025, and the review describes it as still low overall. And the share of new lending at high debt-to-income ratios remains well below the limit of 20 per cent that APRA put in place earlier this year.
Related readBank of Queensland's home loan book shrinks by almost $1bn in MayThose findings match APRA's own June quarter figures, which showed 5.6 per cent of new loans at six times income or more, and low-deposit lending at 4.31 per cent of new owner-occupier loans on Canstar's analysis.
Where Queensland borrowers stand
The review gives no state figures, so the Queensland position has to be read from other sources.
Queensland's loans are, on S&P's evidence, in better order than the national average. They are also larger. The Australian Bureau of Statistics put the average new owner-occupier loan in the state at a record $751,000 in June, $20,000 above the national figure. And the price cushion that has protected Queensland borrowers is no longer growing: Cotality reported on 1 October that Brisbane recorded the sharpest monthly fall in home values of any capital in September.
A large loan, a recent purchase and a falling market is the combination the review identifies as vulnerable. For most Queensland owners, who bought earlier and hold substantial equity, the review's reassurance applies in full. For the minority who bought in the past year or two at close to their borrowing limit, the increase of 29 September is one more step. On a principal-and-interest loan of $751,000 over 30 years, a rise from 6.09 per cent to 6.34 per cent adds about $122 a month. That is an illustration using the standard loan formula, not a quote from a lender.
What a borrower can take from it
The review is written for people who watch the stability of the financial system, and three of its findings are useful to a household. They are general observations, not advice.
- Being short is not the same as being in default. One borrower in 50 is covering a gap from savings. That is the stage at which a lender's hardship team can do the most, and a lender must answer a hardship request within 21 days.
- Reserves are the measure that matters. The Bank counts months of repayments held in offset and redraw. A household can do the same sum for itself, and knows better than any statistic how long its own reserve would last.
- Jobs matter more than rates. The scenario that produces real damage is the one with unemployment at 6.3 per cent. A household with one income, or with work in an industry that is slowing, carries more of that risk.
What comes next
The four major banks have said they will lift variable home loan rates by 0.25 percentage points from Friday 9 October, Australian Broker reported on 30 September, so the first higher repayments arrive this month. The Monetary Policy Board's next meeting is in early November.
APRA publishes its September quarter property lending statistics in December, the first to show arrears after a full quarter at the higher rates of mid-2026. The Reserve Bank's next Financial Stability Review is due in the first half of 2027.
Kooky, from Shaka
Kooky edits Queensland Estate and builds Shaka, the payment router he made for Queensland property professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.
