Australia’s Mortgage Stress Crisis: A Comprehensive Overview
Despite a series of interest rate cuts this year, Australia is facing an ongoing mortgage stress crisis that shows little sign of improvement. Recent research indicates that nearly 1.5 million homeowners are at risk of falling behind on their mortgage payments, suggesting systemic issues in the housing market.
Current Statistics on Mortgage Stress
According to the latest findings from Roy Morgan, as of August 2025, about 27.9% of mortgage holders, equating to approximately 1,423,000 Australians, are deemed “At Risk” of mortgage stress. This figure has seen only a marginal decrease of 0.5 percentage points since June, which indicates a concerning stagnation in mortgage stress levels. Alarmingly, this percentage has remained above 25% for over two years, now persisting despite the Reserve Bank of Australia’s (RBA) proactive measures in cutting interest rates earlier this year.
The Impact of Rate Hikes
The research underlines the adverse effects of the RBA’s aggressive rate-hiking cycle initiated in May 2022, during which rates climbed from a historic low of 0.1% to a peak of 4.35% by early 2025. Since the commencement of this cycle, the number of Australians categorized as “At Risk” has surged by 616,000. As of now, there is a particularly alarming subset termed the “Extremely At Risk” cohort, composed of approximately 915,000 individuals (17.9% of mortgage holders), which is notably higher than the decade-long average of 14.8%.
Potential for Relief Through Further Rate Cuts
The data also illuminates the potential benefits of further interest rate cuts. If the RBA had opted to reduce rates by 0.25% to 3.35%, the model suggested this could reduce the percentage of “At Risk” homeowners to around 25.2% by October 2025, marking the lowest level since January 2023. However, the RBA has chosen to maintain the rate at 3.6%, leaving much-needed relief out of reach.
Short-Term vs. Long-Term Solutions
It is essential to recognize that the effects of the RBA’s latest rate cut in August are expected to be felt by the end of September. Those close to the situation speculate that this could lead to a subsequent decline in the “At Risk” group by about 1.4 percentage points to 26.5%. Yet, Roy Morgan’s CEO Michele Levine emphasizes that while financial reprieve through rate cuts is beneficial, the root of the issue lies in employment rates.
Employment Market: A Buffer Against Financial Hardship
The Australian employment landscape has been relatively robust over the last three years, contributing nearly one million new jobs since May 2022. This robust job market has provided a crucial buffer against mass defaults on mortgages, helping to somewhat moderate the levels of mortgage stress over the past year. Nevertheless, the country is experiencing significant under-employment levels, with over one in five Australian workers—or approximately 3.5 million people (22% of the workforce)—either unemployed or under-employed. This reality highlights that job security remains a crucial concern for many homeowners.
The Risk of Long-Term Solutions Leading to Increased Debt
Levine warns that while immediate rate cuts are essential for alleviating stress experienced by homeowners, sustained reductions may inadvertently encourage new buyers to take on larger loans. Such actions could lead to heightened mortgage stress in the future due to the larger average loan sizes.
In summary, the persistent mortgage stress crisis in Australia reflects deeper economic vulnerabilities not fully addressed by temporary measures like interest rate cuts. While the job market has shown resilience, the undercurrent of unemployment and under-employment poses a significant risk. Policymakers need to consider not only short-term financial relief but also long-term strategies that address the fundamental factors contributing to mortgage stress. The situation remains fluid, and the actions taken in the coming months will be critical in shaping the future landscape of the Australian housing market.
