Australians may be feeling the pinch — but the Reserve Bank has said the vast majority of households are nowhere near the financial cliff many believe they’re standing on.
In a new assessment report of household and business resilience, the RBA says most borrowers are in a “strong financial position” to withstand current and expected financial stress over the next 12 months, and even into the future.
“The financial position of most households and businesses is strong,” the report — released last week and taking into account global and economic factors as recently as March — states.
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Even with inflation, rate rises and the war in the Middle East, it said most Australians will be able to withstand further “financial downturns”.
It adds the share of mortgagors in severe financial stress “is small”.
The report highlights how most mortgage-holders are rebuilding their safety nets in the form of savings buffers, especially in the wake of the global COVID-19 pandemic.
Despite two rate hikes already this year, the RBA said only a little over 1 per cent of variable‑rate owner‑occupiers are estimated to be in a cash‑flow shortfall — and that number has fallen sharply since mid‑2024.
Even fewer are at real risk of defaulting. Just 0.3 per cent of borrowers are both short on cash flow and low on savings buffers, according to the RBA.
It found housing loan arrears have dropped back to pre‑pandemic levels, supported by low unemployment and rising wages.
The RBA said many households had been quietly rebuilding their savings buffers as real disposable incomes have been rising since late 2024, boosted by at the time falling inflation, lower interest rates and the Stage 3 tax cuts.
Many households have continued to tip extra money into offset and redraw accounts, “lifting” savings buffers across all income groups.
And skyrocketing housing prices — rising up to 18 per cent in four years — combined with fewer than 1 per cent of borrowers in negative equity gives many homeowners another safety valve if they do find themselves in trouble, according to the RBA.
The report also said businesses are holding up. Company insolvencies have mostly stabilised, with trouble largely confined to hospitality and construction — sectors already under pressure for years.
The RBA says there is “little evidence” of financial stress among commercial property owners and no sign that business lending is becoming dangerously risky.
The central bank acknowledges global risks, including conflict in the Middle East, could push up costs again. And it warns lenders not to loosen standards as credit growth accelerates.
But overall, the message is clear: Australia’s households and businesses are far more resilient than the national mood suggests.
The RBA concludes that even under severe economic shocks — including a major labour‑market downturn or a 40 per cent crash in house prices — most borrowers would still be able to service their debts.
