Under 1 per cent of borrowers owe more than their home is worth, RBA says

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Fewer than 1 per cent of Australian mortgage borrowers owe more than their home is worth, the Reserve Bank said in its Financial Stability Review published on 1 October 2026. Even if home prices fell by a uniform 20 per cent from current levels, the Bank estimates that only around 5 per cent of mortgages would be in negative equity.

The review appeared on the same day as the Cotality Home Value Index for September, which showed Brisbane dwelling values down 1.5 per cent in a month, the largest fall of any capital. Read side by side, the two documents answer different questions: one says prices are falling, the other says what that does to the people who own the homes.

Reserve Bank of Australia, Financial Stability Review, October 2026, chapter on the resilience of households and businesses. National figures; the review gives no state breakdown.

What the Bank says about prices

The review states the situation plainly. Housing prices have declined in recent months, it says, reflecting the somewhat restrictive stance of monetary policy and the changes to tax policy, after several years of strong growth.

Its judgement is that households and businesses are well placed to weather a slower economy and falling house prices. For households the reasoning rests on equity and on savings. Prices rose strongly before they turned, so most owners bought at levels well below today's. And most borrowers have built up funds in offset and redraw accounts: the median borrower, the review says, could cover more than a year of scheduled mortgage payments from those balances, a stronger position than before the pandemic.

Arrears on housing loans have edged up but remain around pre-pandemic levels, according to the review. They are higher among borrowers on low incomes and those with large loans relative to their income or to the value of the home, but the Bank says they have not picked up significantly in those groups since the start of the year.

About 2 per cent of owner-occupiers with variable-rate loans were in what the Bank calls a cash flow shortfall in the first half of 2026, where income does not cover the mortgage and essential spending. Most of those hold savings buffers of at least six months, and the Bank expects the share to stay a little under 2 per cent for some time, well below its 2024 peak. It also reports no meaningful increase in borrowers steadily drawing down their buffers to get by.

The review does not present the household picture as comfortable for everyone. Real household disposable income per person declined slightly in the first half of 2026 as inflation and interest rates rose, it says, with lower-income households, many of them renters, bearing more of that. Calls to the National Debt Helpline increased modestly over the same period.

The 20 per cent test

Negative equity matters because it is the point at which a borrower who has to sell cannot clear the loan from the proceeds. The Bank's test is deliberately severe: a fall of 20 per cent, applied evenly to every home in the country, from where prices already stand.

The distance between that scenario and the present is worth measuring. Cotality's national index is 5.2 per cent below its March peak, so the scenario assumes a further fall nearly four times as large as the whole decline so far. In Brisbane, the three monthly falls recorded since June compound to about 3.1 per cent.

The review also runs a broader downturn, which it describes as very adverse, combining the price fall with higher unemployment, inflation and interest rates.

In that case the share of borrowers at higher risk of default would reach about 5 per cent, the Bank estimates, only slightly above its peak in 2023. About two-thirds of them would be short of income but hold at least six months of buffers. And even then, the review says, few households would be in negative equity.

A cash rate of 5.6 per cent is one percentage point above the present level, or four further rises of the usual size. The Nightly, reporting the review on 1 October, calculated that four more increases would add $495 a month to repayments on an average new mortgage of $731,000.

The Bank adds a point of law that softens the link between negative equity and default. Australian mortgages are full recourse, meaning the borrower remains liable for any shortfall after a sale, so owing more than the home is worth is not in itself a reason to stop paying. Borrowers who can meet their repayments generally keep doing so.

Who is most exposed

The review is specific about where negative equity is concentrated. It names buyers who purchased close to the peak with high loan-to-valuation ratios, and in particular first home buyers who used the Australian Government's 5% Deposit Scheme, which was expanded in October 2025. The Nightly's report on the review describes participants in the scheme as the borrowers most likely to have fallen into negative equity already.

The Bank's view is that this does not threaten the stability of the system, for reasons built into the scheme. The government guarantees up to 15 per cent of the property's value if the borrower defaults, so the lender's loss is covered. Participants are assessed, like other borrowers, at an interest rate 3 percentage points above the one they are offered. And first home buyers account for a small share of total housing credit. Hardship and arrears among participants remain contained, the review says.

Investors are the other group the review watches. It notes that lending to investors picked up strongly over 2025 and has since slowed, and it expects investor credit to moderate further given the tax changes and softer prices. Investors have historically amplified price falls when they sell, the Bank observes, but their arrears and defaults have been lower than those of owner-occupiers, and rising rents are supporting their incomes.

On lending standards the review reports little change. New lending at high debt-to-income ratios is well below the 20 per cent limit that the Australian Prudential Regulation Authority put in place, and high loan-to-valuation lending has risen since the deposit scheme was expanded but remains low overall. Banks, the review concludes, are in a position to absorb a material deterioration in the housing market.

Reading it from Queensland

The review has no state figures, but other published data suggest Queensland owners entered this downturn with a substantial cushion. The Real Estate Institute of Queensland reported that the statewide median house price in the June quarter, at $983,000, was still 16.57 per cent higher than a year earlier, and the unit median 17.29 per cent higher. Cotality's August index had Brisbane dwelling values 10.8 per cent up over twelve months. An owner who bought before the middle of 2025 is, on those figures, likely to be well ahead still.

The owners most exposed are the newest ones. Brisbane values peaked in May, on Cotality's figures as reported by API Magazine, so someone who bought in the first half of 2026 has had little or no price growth to build equity and has seen values fall since. The review's finding is that such borrowers are a small share of the total, not that they do not exist.

The institute's figures show Queensland investors stepping back before the review was written. Loan commitments to property investors in Queensland fell 10.1 per cent in the June quarter, it reported on 31 August, against a fall of 5.9 per cent in all new housing loan commitments.

For the market as a whole, the significance is about forced selling. Price falls feed on themselves when owners must sell into a weak market. A system in which fewer than 1 per cent of borrowers are in negative equity, and the typical borrower holds a year of repayments in reserve, is one in which most owners can choose to wait. That tends to slow sales and lengthen campaigns more than it produces sudden drops in price. Cotality's September figures fit that description: sales in Brisbane over three months were 27.2 per cent lower than a year earlier.

Outside housing, and what follows

The review's larger worries lie elsewhere. It locates the main threats to financial stability overseas, in high asset prices combined with leverage and in the funding of artificial intelligence investment, according to the summary published by FXStreet on 1 October. At home it finds most businesses coping with higher costs, with more strain among smaller and energy-intensive firms. The Nightly's report adds that insolvencies remain elevated in construction, hospitality and transport, a point of direct interest to anyone waiting on a new home.

The Reserve Bank publishes the review twice a year. Before the next one, the Monetary Policy Board meets on 2 and 3 November and again on 7 and 8 December, and each decision will move the present a little closer to, or further from, the scenario the Bank has just tested.

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.

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