Most borrowers remain resilient as housing market weakens, APRA says

Australia’s mortgage system is holding up despite falling property prices and higher household costs, but the financial regulator has warned that a more severe downturn could expose heavily indebted borrowers.

The Australian Prudential Regulation Authority said in its System Risk Outlook, published on Thursday, that national housing prices had declined by about 6 per cent since March and were back around mid-2025 levels.

Housing credit growth had also slowed, particularly among investors, while forward indicators pointed to further weakness in housing and mortgage activity.

APRA’s central assessment is nevertheless that the banking system and most households remain resilient. Many borrowers have accumulated equity in their homes or made extra mortgage repayments, providing protection when budgets tighten or property values fall.

The regulator cited Reserve Bank estimates showing fewer than 2 per cent of variable-rate owner-occupier borrowers were experiencing a cash flow shortfall. Fewer than 1 per cent of all borrowers were estimated to be in negative equity, where the mortgage balance exceeds the property’s value.

Mortgage arrears have risen but remain low, APRA said, while bank capital and lending standards provide another layer of protection against widespread losses.

High debt remains the key vulnerability

The reassuring headline does not mean every borrower is comfortable.

APRA said aggregate household debt was equivalent to about 180 per cent of disposable income, a high level by both historical and international standards. Households carrying large debts or limited savings have less capacity to deal with unemployment, further cost increases or an unexpected expense.

The regulator’s concern is therefore not simply that home prices are falling. The greater danger would be several pressures arriving together: a sharper price decline, a substantial rise in unemployment and tighter access to credit.

That combination could leave more owners struggling to meet repayments and force some to sell. A larger number of distressed sales could then put additional pressure on prices, household spending and lenders’ credit losses.

Negative equity is especially important when it coincides with repayment trouble. A borrower can generally continue living in a home whose market value has fallen if repayments remain manageable. But selling becomes more difficult if the sale proceeds would not clear the loan.

Lending competition under scrutiny

APRA also warned that strong competition between lenders must not result in weaker loan assessments as the pool of new borrowers shrinks.

The regulator said riskier lending remained contained, but it was watching banks and non-bank lenders for signs that competition was eroding standards. Its limits on high debt-to-income lending, introduced in February 2026, remain one safeguard against another build-up of highly leveraged borrowing.

For prospective buyers, this points to a market in which prices may be softer without finance necessarily becoming easier to obtain. A lower purchase price can help with the deposit, but higher repayments and lender serviceability tests may still restrict the amount available to borrow.

Existing owners should also distinguish between a paper decline in their property’s value and an immediate financial crisis. APRA’s figures indicate most borrowers still have equity and repayment buffers, although households with recent large loans may have less room than long-term owners.

The outlook will depend heavily on employment. Stable income allows borrowers to keep servicing loans through a downturn, while widespread job losses would turn falling values into a much more serious test.

What it means for you

• Buyers should obtain a current loan assessment rather than assuming lower prices have increased their budget.
• Recent purchasers should monitor their equity before refinancing, selling or applying for another loan.
• Owners under repayment pressure should contact their lender early, before missed payments accumulate.
• APRA sees the system as resilient, but highly indebted households remain more exposed if unemployment rises.