Key Highlights

  • The minutes say very few borrowers are in negative equity, and that would likely remain true under a hypothetical 20% housing-price decline.
  • Low arrears, modest cash flow shortfalls and savings buffers are cited as additional lines of defence.
  • The assessment does not rule out hardship for individual households, and the next cash rate decision is scheduled for 3 November 2026.

With home values falling faster than expected, the Reserve Bank's latest minutes offer a notable piece of reassurance: very few borrowers are in negative equity, and that is likely to remain the case even if housing prices were to fall by 20%.

Falling house prices tend to prompt one particular worry among homeowners with large loans: what happens if the property ends up worth less than the debt secured against it? The minutes of the Reserve Bank of Australia's (RBA) 28–29 September 2026 Monetary Policy Board meeting, published on 13 October, address that question directly.

According to the minutes, very few borrowers are in negative equity, and they are likely to remain so under a hypothetical 20% housing-price decline.

The assessment arrives at a sensitive moment. The Board raised the cash rate target by 25 basis points to 4.60% at that meeting, effective 30 September, the fourth increase of 2026. At the same time, the housing market has been softening faster than the RBA had anticipated.

What being underwater means

A borrower is in negative equity, often described as being "underwater", when the outstanding balance on their home loan is larger than the value of the property. In general terms, that position matters because it limits a household's options: selling the property would not raise enough to repay the loan in full, and moving to a different loan can be harder.

Negative equity on its own does not mean a borrower is behind on repayments. A household can continue meeting its obligations while its home is temporarily worth less than the loan. The concern for policymakers is the combination of negative equity with repayment difficulty, because that is where losses for households and lenders are more likely to arise.

That is why the RBA's assessment of negative equity sits alongside its analysis of cash flow and savings buffers in the minutes.

Why the question is live now

The housing market has turned. The Board's statement on 29 September said "housing prices have fallen in most capital cities" and "new housing loans have declined noticeably".

The minutes go further, noting that established housing prices fell faster than expected and that "the cumulative fall in housing prices is likely to be greater than had been assumed." New housing loan commitments fell sharply, led by investors.

In August, Assistant Governor (Financial Markets) Christopher Kent said national housing prices had been falling about 0.5% a month over the previous three months, with four consecutive monthly falls. He noted declines had not yet been as steep as in 2018–19 or 2022. He also said "tax changes announced in the federal budget appear to have contributed to reduced demand".

Against that backdrop, a scenario of a 20% fall offers a useful reference point for how much room borrowers have. The 20% figure in the minutes is a hypothetical scale of decline, not a forecast of where prices are heading.

Equity is only one line of defence

The minutes set the negative equity finding within a broader picture of household resilience:

  • Repayment burden: scheduled mortgage payments were about 10% of household disposable income, near their 2024 peak.
  • Arrears: arrears were low, and loan impairments were around historical lows.
  • Cash flow: fewer than 2% of owner-occupier borrowers had a cash flow shortfall, well below the 2023–24 peak.
  • Buffers: median savings buffers were just under one year of repayments for the lowest income quintile and almost two years for the highest.

The Financial Stability Review, released on 1 October 2026, reached consistent conclusions. In paraphrase, it found that most mortgage holders should cope with harder conditions even if house prices fell sharply, although there are some pockets of stress. It also said: "Australian banks are well positioned to continue lending, even in a downturn." The review described the financial system as having "a good degree of resilience".

Governor Michele Bullock pointed to another cushion at her media conference: "a lot of people have a mortgage, and then they have an offset account, which sits in the background."

What the assessment does and does not say

the finding indicates limited negative-equity exposure under the scenario, but it has limits worth noting.

It refers to very few borrowers, not none. In general terms, households that borrowed a high share of their property's value have less equity available to absorb price falls than those with larger deposits or older loans. The Financial Stability Review's reference to pockets of stress is a reminder that system-wide averages can mask individual difficulty.

Buffers also differ markedly across income groups. A median buffer of just under a year of repayments for lower-income borrowers is meaningfully smaller than the almost two years held by those on the highest incomes.

And the assessment is about the financial system, not about the experience of any one household. The minutes record that "financial stability considerations were not currently constraining the setting of monetary policy." In other words, the Board judged that the banking system could withstand weaker housing conditions, which left it free to focus on inflation.

That freedom is visible in the September decision. Headline CPI was 4.0% over the year to August 2026 on the monthly measure, and underlying inflation, measured by the trimmed mean, was 3.6% over the year to the June quarter. The minutes say members judged that "inflation remained too high."

Bullock acknowledged the cost: "Those who have mortgages, yes, this clearly impacts them and it hurts them." She also said "we have a structural under supply of housing", a reminder that the RBA sees the longer-term housing picture as shaped by limited supply.

The bottom line

The RBA's minutes suggest that even a steep 20% fall in housing prices would leave very few borrowers owing more than their homes are worth. Combined with low arrears, modest cash flow shortfalls and meaningful savings buffers, that finding underpins the RBA's view that financial stability is not constraining its inflation fight. The assessment does not rule out hardship for individual households, and borrowers may wish to check their loan terms with their lender. The next cash rate decision is scheduled for 3 November 2026.