The Reserve Bank's October Financial Stability Review finds most Australian Mortgage holders have enough income and savings to absorb a tougher economy, while a small group remains under genuine pressure.

Two days after lifting the cash rate for the fourth time in 2026, the Reserve Bank of Australia (RBA) released its latest assessment of the health of the financial system. The October 2026 Financial Stability Review (FSR), published at 11.30 am on Thursday 1 October, delivered a measured verdict on the nation's home borrowers: "Most Australian households with mortgages remain well placed to manage more difficult conditions".

The timing gave that finding extra weight. On 29 September, the RBA's Monetary Policy Board raised the cash rate target by 25 basis points to 4.60 per cent, up from 4.35 per cent. Governor Michele Bullock did not play down the impact at her media conference that afternoon: "I know this decision is difficult for households with a mortgage and businesses with loans."

She also signalled that the review was coming, telling reporters: "Our Financial Stability Review comes out on Thursday, and it will talk a little bit about the vulnerabilities".

What sits behind the 'well placed' finding

The RBA does not reach its conclusion from a single number. The household chapter of the Review draws together several indicators, each looking at a different kind of risk.

  • Cash flow: the share of variable-rate owner-occupier borrowers experiencing a cash-flow shortfall – meaning their income is not enough to cover scheduled mortgage repayments and essential expenses – "increased a little over the first half of 2026, but remains relatively low at around 2 per cent".
  • Savings buffers: offset and redraw balances leave "the median borrower able to cover over a year of scheduled mortgage payments at current interest rates from these buffers".
  • Home equity: there are "less than 1 per cent of borrowers estimated to owe more on their Loan than the value of their property".
  • Arrears: the share of loans 90 or more days in arrears increased a little over the year to date, but remains around pre-pandemic levels, according to the Review.

Taken together, these measures point in the same direction. Most borrowers are meeting their repayments, most have savings to draw on if something goes wrong, and very few would be left owing more than their home is worth if they had to sell. The RBA also judged that borrowers' buffer position is stronger than it was before the pandemic.

The forward view is broadly steady as well. The RBA projects the cash-flow shortfall share to stay a little under 2 per cent for some time, and it estimates that most borrowers already in shortfall have at least six months of savings to fall back on.

The minority who are struggling

"Most" is not "all", and the RBA's own figures make that clear. Around 2 per cent of variable-rate owner-occupier borrowers have income that does not stretch to cover their mortgage and essentials. For those households, a further rise in repayments adds to pressure that already exists.

Governor Bullock drew the same distinction when she appeared before the House of Representatives Standing Committee on Economics on 18 September: "The share of borrowers in negative Equity remains very limited and only a small share are facing severe difficulty with their loan repayments."

Assistant Governor (Economic) Sarah Hunter struck a similar note on The Pay Off podcast on 22 September. She said she saw no signs of systemic financial distress, though individuals can struggle if their income changes. That caveat is important: medians and shares describe the system, not any one household. A borrower who loses a Job or has hours cut can move from comfortable to stretched quickly, regardless of how the overall numbers look.

Repayment burdens have also climbed back. Bullock said at her 29 September media conference that scheduled mortgage payments, including interest, are back up to around 10 per cent of household disposable income. And the latest increase has not yet fully reached household budgets. Bullock noted that "it can take 12, perhaps even 18 months" for the full effect of rate changes to flow through.

Putting the verdict under stress

To test how durable its assessment is, the RBA modelled a severe downturn in which the "unemployment rate increases to 6.3 per cent, Inflation increases to 7 per cent, and the cash rate rises to 5.6 per cent – the share of mortgagors at a higher risk of defaulting on their loans is estimated to increase to around 5 per cent".

According to the Review, that would be only a little higher than the peak in 2023. About two-thirds of those higher-risk borrowers would still have buffers large enough to service their debts for at least six months.

For context, the scenario's Unemployment rate is 1.7 percentage points above the 4.6 per cent the Governor cited on 29 September, and its cash rate is a full percentage point above today's 4.60 per cent target. It is a deliberately harsh test, and the household sector comes through it with a modest rise in risk rather than a collapse.

The Review's broader findings support the same picture. It concluded that "Australian banks are well positioned to continue lending, even in a downturn", which matters for borrowers because lenders that remain healthy are better able to keep Credit flowing when conditions sour. The overall assessment was that "Australia's financial system has a good degree of resilience, but global and operational vulnerabilities continue to mount".

The bottom line

The October FSR's message to mortgage holders is one of qualified resilience. The median borrower has buffers worth more than a year of repayments at current rates, fewer than one in 100 borrowers are in negative equity, and arrears remain around pre-pandemic levels. Even a severe stress scenario lifts the share of higher-risk borrowers only a little above the 2023 peak.

The qualification is that a small group – around 2 per cent of variable-rate owner-occupiers – is already in cash-flow shortfall, and the September rate rise has yet to work its way fully through repayments.

What to watch next: the August monthly CPI indicator showed headline inflation of 4.0 per cent, and the next CPI update is due on 28 October. The Board's next decision, together with a new Statement on Monetary Policy, is scheduled for 2.30 pm AEDT on 3 November. In its September statement, the Board said it "will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed." Borrowers may wish to check how their own loan terms and buffers compare with the system-wide picture in the Review.