The Reserve Bank's October Financial Stability Review finds a small minority of variable-rate owner-occupiers in cash-flow shortfall, most with savings to draw on, even after a year of rising rates.

After four cash rate increases in 2026, totalling 100 basis points, it would be reasonable to expect signs of widespread strain among mortgage holders. The Reserve Bank of Australia's (RBA) October 2026 Financial Stability Review, released on 1 October, paints a more measured picture.

According to the review, the share of variable-rate owner-occupiers with a cash-flow shortfall "remains relatively low at around 2 per cent". Most of those in shortfall, it said, have savings to cover it for at least six months.

The figure sits alongside a blunt acknowledgement from Governor Michele Bullock that higher rates are doing what they are designed to do. "Those who have mortgages, yes, this clearly impacts them and it hurts them", she said at her media conference on 29 September. The questions below unpack what the 2 per cent figure does and does not say.

What does the figure measure, and how does it compare?

Broadly, a cash-flow shortfall describes borrowers whose incoming cash does not stretch to cover their outgoings, including mortgage repayments. The precise methodology is set out in the review's chapter on households and businesses. The key point for readers is the population: the figure relates to variable-rate owner-occupiers, not all borrowers and not all households. Investors, fixed-rate borrowers and households without a mortgage are outside that particular measure.

For comparison, the review says the share of borrowers in severe stress "will remain well below its 2024 peak". That comparison matters because 2024 is also the reference point Assistant Governor (Financial Markets) Christopher Kent used in August. "Scheduled mortgage payments have risen and are now close to their 2024 peak as a share of household disposable income", he said on 13 August, when the cash rate was 4.35 per cent.

Put together, the two observations suggest a nuance: the repayment burden for the typical borrower has been climbing back towards earlier highs, yet the share facing a genuine shortfall remains small and severe stress is expected to stay below the earlier peak.

Why are most borrowers coping?

The review and RBA officials point to several factors:

  • Savings buffers. Most borrowers in shortfall can cover it for at least six months from savings, according to the review.
  • Offset accounts. Bullock noted that "a lot of people have a mortgage, and then they have an offset account, which sits in the background", and that "the amount of money in those offset accounts has actually grown quite a lot over the last decade or so."
  • Incomes. Real household disposable income per capita declined slightly over the first half of 2026, but the review says it remains higher than its 2023 and 2024 averages.
  • Lending standards. The share of high loan-to-valuation (LVR) lending has risen since the expansion of the Government's 5% Deposit Scheme but "remains low overall", while new investor lending has moderated from elevated levels.
  • Employment. Bullock cited an unemployment rate of 4.6 per cent and noted that over a million jobs have been created in recent years. On 18 September she described an unemployment rate of 4.5 per cent as "low by historical standards."

Assistant Governor (Economic) Sarah Hunter summarised the average position on 14 September: "the average household, actually, with a mortgage, for example, looks pretty well-placed as well". She also acknowledged that "for many members of the community, it's a tough time".

What else is squeezing households?

Mortgage repayments are not the only pressure. Headline CPI inflation was 4.0 per cent over the year to August 2026, and underlying inflation was, in Bullock's words, "about 3.5 per cent for the past six months". The trimmed mean was 3.6 per cent in the June quarter. Bullock pointed to costs that have shifted structurally: "fuel prices, fertiliser prices, transport prices, all these things now are permanently higher."

On the broader economy, the Board's September statement noted that output growth has slowed and consumer spending is easing gradually. For businesses, the review found company insolvencies "around their longer-run average", though elevated in hospitality and construction.

Does the figure capture September's rate rise?

This is not clear from the information available. The review was released on 1 October, two days after the 29 September decision and a day after the new 4.60 per cent rate took effect. The underlying data and modelling behind the 2 per cent estimate are not detailed here, so it cannot be said with confidence whether the latest increase is fully reflected.

What is clear is that rate rises take time to feed through. Bullock told a parliamentary committee on 18 September that monetary policy works with a lag and that the full effects of recent rises were not yet visible. The RBA itself frames severe stress in forward-looking terms ("will remain well below"), which signals an assessment of where things are heading, not just where they are.

Bullock has said she will not give forward guidance, and the Board says it will "continue to do what it considers necessary" to return inflation to target.

The review's broader message on the financial system was one of "a good degree of resilience, but global and operational vulnerabilities continue to mount".

The bottom line

The headline finding is that around 2 per cent of variable-rate owner-occupiers are in cash-flow shortfall, with most able to cover the gap from savings for at least six months, and with severe stress expected to stay well below its 2024 peak. That is consistent with the RBA's view that the typical mortgage household is coping, but it sits alongside clear acknowledgements that repayments are near earlier highs, that rate rises hurt, and that their full effects are still working through. The 2 per cent is a snapshot of a narrow group, not a measure of how every household is faring.