The Reserve Bank estimates that around 2 per cent of variable-rate owner-occupier borrowers have incomes that do not stretch to cover their essential spending and mortgage payments, a small but closely watched corner of the mortgage market.

Averages and medians tend to dominate discussion of how households are coping with higher interest rates. The typical borrower, the RBA reports, has a sizeable cushion of savings and a loan that is comfortably smaller than the value of their home. But financial stability analysis is as much about the edges of the distribution as its centre, and one figure in the October 2026 Financial Stability Review (FSR) speaks directly to those edges.

According to the review, released on 1 October, the share of variable-rate owner-occupier borrowers experiencing a cash-flow shortfall "remains relatively low at around 2 per cent". It is projected to stay at "a little under 2 per cent for some time".

Defining the group

In broad terms, a cash-flow shortfall describes a household whose regular income does not cover both its essential living costs and its scheduled loan payments. Such a household has to make up the gap from savings, by cutting back further, or by other means. Put simply, these are borrowers who run short each month once the essentials and the mortgage are paid.

The RBA's figure is specific about who is in scope. It covers variable-rate owner-occupier borrowers, meaning people with a variable-rate loan on the home they live in. It does not, by definition, describe investors or borrowers on fixed rates. That focus makes sense in a rate-rising year, because variable-rate borrowers are the ones whose repayments change soonest when the cash rate moves.

The figures drawn on for this article do not break the 2 per cent down by age, income or location, so it is not possible to draw a detailed portrait of these households from them. What can be said is how they differ from the broader borrower population on the measures the RBA does report.

How the 2% compare with the typical borrower

The contrast with the median borrower is stark. The FSR estimates that "the median borrower [is] able to cover over a year of scheduled mortgage payments" from money held in offset and redraw accounts. Households running a cash-flow shortfall each month are, by implication, having to bridge the gap somehow, whether by drawing on savings, cutting back further or finding other sources of money.

Other measures help set the scale of household stress more broadly:

  • Arrears: loans 90 or more days behind have risen slightly but the share "remains around pre-pandemic levels".
  • Negative equity: fewer than 1 per cent of borrowers owe more than their homes are worth.
  • Adverse scenario: in a very adverse scenario, the share of mortgagors at higher risk of default rises to about 5 per cent.

Together, these figures describe a group under pressure that is small relative to the whole, but not trivial. A low percentage of a large borrower base can still represent a meaningful number of households.

The FSR media release made the same distinction in its own way, saying most mortgage households are well placed to cope even with a sharp fall in house prices, while there are some pockets of stress.

Why repayments have pushed some to the edge

The squeeze reflects a year of rising rates. The Monetary Policy Board lifted the cash rate target four times in 2026, on 3 February, 17 March, 5 May and 29 September, taking it from 3.60 per cent to 4.60 per cent.

Assistant Governor (Financial Markets) Christopher Kent said on 13 August, when the cash rate was 4.35 per cent, that "Scheduled mortgage payments have risen and are now close to their 2024 peak as a share of household disposable income." The FSR notes that "Scheduled mortgage payments have been the largest claim on household income". Governor Michele Bullock said at her 29 September media conference that mortgage payments were "back up sort of around 10 per cent of" disposable income, an approximation, and compared that with "when we had interest rates at 4.35 per cent, so they'll go up a bit further."

Living costs are also part of the equation. Headline inflation was 3.9 per cent over the year to the June quarter and the monthly CPI indicator recorded 4.0 per cent for August. Underlying inflation, measured by the trimmed mean, was 3.6 per cent in the June quarter, which Bullock described as "about 3.5 per cent". Bullock said "the Middle East conflict has been a big shock, and it's made us all poorer in this country", adding that "fuel prices, fertiliser prices, transport prices, all these things now are permanently higher".

Bullock acknowledged the impact on households directly: "I know they don't understand why we have to do this and it hurts them."

Jobs: the factor that could change the number

Income is the other side of the cash-flow equation, which is why the labour market matters so much to this group. Bullock said "the unemployment rate has risen from 3.5 per cent over the past couple of years to 4.6 per cent", while noting that "there's been over a million jobs created" and that the rise "doesn't mean job losses."

The August Statement on Monetary Policy, prepared before the September hike, forecast unemployment edging up to 4.8 per cent by mid-2028. The 4.6 per cent rate Bullock cited is already the level those forecasts had pencilled in for June 2027. On the business side, the FSR noted that insolvencies "remain elevated in some industries, particularly hospitality, construction and transport", which could affect workers in those sectors.

The bottom line

The 2 per cent are, by the RBA's definition, variable-rate owner-occupiers whose income does not cover essential spending and mortgage payments. The data published here do not reveal much more about who they are, but they show how they stand apart: most borrowers have more than a year of repayments in reserve, while this group has to find the difference elsewhere each month.

The RBA expects the share to remain a little under 2 per cent for some time. Whether that holds will depend on jobs, living costs and interest rates. The Board's next decision is due at 2.30 pm on 3 November, and Bullock has said she is "not going to give you forward guidance".