A growing number of home owners strapped to a mortgage are struggling to keep a roof over their head and are now contemplating their options, new research shows.
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Declining property prices, rising unemployment and sustained high interest rates are weighing heavily on mortgage holders, who have depleted their financial buffers and the stress has now set in.
In particular, highly leveraged borrowers new to the market who purchased at market peaks have been left exposed to property price declines if loans were secured at market peaks.
The data shows that more than one per cent of mortgaged home owners in Ballarat (1.34 per cent), the Hunter Valley (1.32 per cent), Canberra (1.22 per cent) and the Illawarra (1.17 per cent) have defaulted on their bank loan in the past month.
For comparison, the worst performing postcode in the data made available by S&P Global Ratings shows that the Melbourne suburb of Pakenham performed the worst, where 2.88 per cent of home owners had fallen into arrears in the past 30 days.
On a state level, Victoria has the highest rate of arrears as of June 2026.
This partly reflects higher unemployment rates relative to other states and more lacklustre property market performance.
This decreases options for voluntary property sales or refinancing for more financially stretched borrowers.
Dreading the default
S&P Global Ratings report co-author Erin Kitson said the rates of mortgage arrears vary across Australia, with property price drops more pronounced in city areas.
Borrowers in advanced arrears or mortgage default can also opt to refinance.
"Refinancing rates are high in Australia as people hunt around to get a better deal on their mortgage," Ms Kitson said.
"A borrower experiencing financial stress can voluntarily opt to sell their home.
"However, if property prices come down quickly, a sale can inhibit a homeowners' ability to sell for asking price and could limit the amount of equity built up in that property."
Loan arrears are expected to increase in all states and territories in line with rising interest rates, which will be more pronounced in NSW and Victoria, according to analysis by S&P Global Ratings.
The report also reveals signs that mortgage holders are quickly realising they have become locked into home loans, with 54 per cent of mortgage holders admitting they can't switch to a better loan for reasons beyond their control.
Mortgage for life
Concerningly, many home owners expect to still be paying, or are already paying, their mortgage in retirement.
The data also points to a slow-down in investor lending and heightened debt serviceability pressures.
It also points out that arrears are a lagging indicator that generally take about four to six months to surface following interest rate rises.
While S&P Global Ratings predicts that the Reserve Bank of Australia will hold rates through early 2027 and be able to resume rate cuts in 2027 to bring the policy rate to 3.6 per cent by the end of next year, the fact is that inflationary pressures erode real income, which impacts lower-income households disproportionately.
The findings echo the recently released Finder 2026 Home Loan Report, which also found that borrowers are facing decades of mortgage stress, and that home loans are following more and more people into retirement.
More than half of mortgage holders are spending more than 30 per cent of their take-home pay on repayment, which marks the widely accepted cost threshold for mortgage stress.
Among the 291 current mortgage holders in Finder's sample, only 34 per cent say they can comfortably afford their repayments.
A further 39 per cent can afford their repayments, but admit they don't have much wriggle room.
