‘Ticking up’: APRA reveals arrears rising as pressures mount

“They are ticking up and there are elements of some greater indication of hardship coming through,” she said.

McCarthy Hockey said APRA’s assessment drew on both its discussions with lenders and the figures it was receiving, with customers engaging with banks as difficulties arose.

“The banks talk to us about that and we see a bit in the data. What’s happening is the mortgagee is coming to the bank and they are working with the bank,” she said.

APRA figures showed the proportion of home loans in default reached 1.01 per cent in June, compared with 0.99 per cent in March.

Employment risks compound household pressures

Also appearing before the committee, APRA chair John Lonsdale identified employment conditions as a potential source of further mortgage difficulties.

September’s unemployment rate of 4.7 per cent, a five-year high, formed the backdrop to questions from Nationals leader Matt Canavan about borrowers’ capacity to keep servicing their loans.

“We’re closely watching the employment market which would drive a problem in that area,” Lonsdale said.

Households have also absorbed four interest rate increases this year, with a fifth hike widely expected at Tuesday’s (3 November) Reserve Bank meeting, which would lift the cash rate to an 18-year high of 4.85 per cent.

“There are certainly cost-of-living pressures in the community,” Lonsdale said.

However, he distinguished financial strain from loans becoming non-performing, explaining that earlier contact between customers and lenders was helping banks manage repayment problems.

“There is certainly mortgage stress in the community but how much of that actually translates into a non-performing loan is something different, and what the banks are telling us is that certainly over recent years, customers who are experiencing mortgage stress are going to the banks earlier,” he said.

“They’re talking about possible options, repayment plans are being worked through and there’s a much better triaging of mortgage stress than was once the case.”

Higher leverage joins APRA’s watchlist

APRA is also monitoring an increase in higher loan-to-value ratio (LVR) borrowing among first home buyers (FHB) following the expansion of the federal government’s 5 per cent deposit scheme in October 2025.

Lonsdale cautioned that the data remained incomplete, but described a shift towards purchases funded with smaller deposits.

“I think there’s a trend that we’re watching that there is a move, we’ve got more first home buyers moving into the 90 and 95 per cent category, if that makes sense. They’re moving up in leverage,” Lonsdale said.

Low-doc lending shows sharper deterioration

Separate APRA data analysed by Canstar showed a more pronounced deterioration in bank low-documentation mortgages.

Arrears in that segment reached 4.9 per cent of outstanding loans in the June 2026 quarter, against 4.2 per cent a year earlier.

Low-doc products accommodate borrowers, including sole traders and small-business owners, who cannot supply the standard income paperwork, such as tax returns, required for conventional assessment.

S&P Global Ratings analyst Erin Kitson said the segment did not pose a systemic risk, but that self-employed borrowers’ income exposure made their repayments more vulnerable to economic deterioration.

“The cash flows of these borrowers are more exposed to deteriorating economic conditions, including rising interest rates, given the more direct impact it has on their income,” she said.

“Borrowers with low-doc loans are more likely to experience arrears pressure before more traditional loan types, given the greater sensitivity of self-employed borrowers’ cash flows to changing economic conditions.”

[Related: Mortgage repayments claim more than 50% of family income]