Amid sustained cost-of-living pressures, LVR home loan arrears have remained contained, with loans 30 to 89 days past due holding at 0.47% and non-performing loans recorded at 1.04%. The data points to continued stability across higher loan-to-value mortgage portfolios in 2025.
Figures from the Australian Prudential Regulation Authority show delinquency rates remain well below historical stress benchmarks, despite the impact of 13 consecutive interest rate increases between May 2022 and November 2023 and an extended period of elevated borrowing costs. Total mortgage arrears across the banking system sit at approximately 1.68%, below the pandemic-era peak of 1.86% recorded in the June quarter of 2020, underscoring the resilience of Australia’s housing finance sector and the effectiveness of prudential lending standards.
Defining Loan to Value Ratios and Their Impact on Mortgage Performance
The loan-to-value ratio calculates the percentage of a property's worth that is financed by borrowed money. Lenders compute this statistic by multiplying the loan amount by 100 after dividing it by the value of the property. A $600,000 property secured by a $450,000 loan has an LVR of 75%. Ratios over 80% are usually considered high-risk lending according to industry norms.
Mortgage issues are divided into two different categories by APRA. Early-stage arrears are loans that are 30 to 89 days past due and frequently indicate brief interruptions in financial flow. Mortgages that are 90 days or more past due are considered non-performing loans. This category also includes situations where lenders assess full repayment as unlikely without enforcement measures.
The current performance data requires historical context. Variable mortgage rates have climbed from below 3% in 2022 to current levels exceeding 6%. Monthly repayments on a $750,000 mortgage increased by approximately $1,550 during this period. This represents an annual cost increase of $18,600. Yet arrears rates have improved in recent quarters rather than deteriorating.
Financial services providers including Empower Money note the importance of understanding these metrics for both borrowers and market observers. The stability in lvr home loan performance suggests Australian lending standards have effectively balanced access to credit with prudent risk management.
Structural Factors Supporting Mortgage Stability
Multiple systemic protections have prevented widespread payment difficulties despite economic headwinds.
Lenders must evaluate borrower capacity at rates three percentage points higher than actual mortgage rates under prudential lending guidelines that were implemented in October 2021. Since mid-2022, the percentage of new originations with high LVR financing has stayed below 7%. Interest-only mortgages comprise just 19.7% of new loans and sit substantially below the 30% threshold APRA previously imposed.
Labour market resilience continues supporting household income stability. Official unemployment holds at 4.1% as of May 2025 with underemployment near multi-decade lows. Sustained employment enables most mortgage holders to maintain repayment schedules.
Pre-existing savings buffers accumulated during the pandemic period provide ongoing support. The household saving ratio exceeded 10% between mid-2020 and early 2022. Current offset account balances total $301.9 billion across the banking system.
Limited negative equity exposure preserves borrower options during financial stress. Reserve Bank analysis indicates less than 1% of mortgages face negative equity scenarios. This enables most borrowers experiencing difficulties to resolve situations through property sales rather than default.
The central bank has consistently emphasised that significant default rates require a "double trigger" scenario. This involves simultaneous inability to service debt and negative equity positions. Neither condition has materialised broadly across Australian housing markets.
Recent Quarterly Performance Trends
The June 2025 quarter delivered measurably improved outcomes. Loans classified as 30 to 89 days past due declined from 0.60% to 0.55%. Non-performing loans eased to 1.07%. These improvements coincide with the Reserve Bank's rate-cutting cycle that commenced in February 2025. The cash rate had previously peaked at 4.35%.
The official cash rate now stands at 3.60% and provides material relief to variable-rate borrowers. Debt servicing costs rose dramatically during the tightening cycle. Variable mortgage rates climbed approximately four percentage points from their 2022 lows. The reversal of this trend has begun easing household budget pressures.
APRA's broader dataset reveals high debt-to-income lending at 5.8% of new originations. High loan-to-income ratios sit at 3.1%. These figures reflect conservative lending practices that have prevented aggressive risk accumulation during the recent property market cycle.
Offset account data provides insight into household financial management strategies. While balances declined by $5.7 billion during the June quarter, they remain substantially elevated compared to historical norms. Financial institutions attribute the quarterly decline partly to end-of-financial-year spending patterns rather than systemic stress.
Implications for Market Participants and Policy Settings
The sustained low-arrears environment carries noteworthy implications across multiple dimensions of the housing finance sector.
First home buyers continue accessing credit through established channels and government support. The First Home Guarantee scheme expanded from October 2025 by removing income caps and introducing unlimited places. The programme enables property purchases with 5% deposits while avoiding lenders mortgage insurance costs that can reach tens of thousands for high lvr home loan transactions.
Refinancing activity shows sensitivity to interest rate movements and property valuations. Borrowers locked into higher fixed rates during 2023 and early 2024 face decisions about switching to variable products. Property value changes may have altered loan-to-value ratios and potentially affect refinancing eligibility.
Regulatory settings appear unlikely to ease despite improved arrears data. APRA has provided no indication of reducing the 3% serviceability buffer. The regulator continues monitoring lending quality metrics across multiple dimensions.
Financial advisory services such as those provided by Empower Money emphasise the importance of understanding individual circumstances when making borrowing or refinancing decisions. Professional guidance helps borrowers navigate complex lending criteria and identify appropriate financial strategies.
Economic Projections and Risk Assessment
Economic forecasters present measured outlooks for mortgage performance through 2025 and 2026. Oxford Economics projects arrears may peak around 1.84% of total outstanding housing loans under baseline scenarios. The Reserve Bank suggests declining trends as monetary policy easing continues.
Critical factors influencing future performance include:
Interest rate trajectory
Employment levels
Property price movements
Inflation trends
Further cash rate reductions will directly reduce variable mortgage costs and improve household budgets. Labour market conditions remain the primary determinant of payment capacity for most borrowers.
Property price appreciation across major markets continues reducing negative equity risk. CoreLogic data shows capital city median values rising approximately 5% through the current financial year and supporting borrower equity positions. However, regional variations exist with some markets experiencing slower growth.
Potential risks include unexpected unemployment increases above 4.5% and property market corrections in overheated segments. Renewed inflationary pressures forcing monetary policy reversal also present risks. Stress testing of the financial system recommends that banks keep enough capital reserves to withstand significantly higher default rates without endangering overall stability.
The housing market exhibits the ability to absorb sales of stressed properties without causing significant price drops. Major city auction clearance rates, which range between 65% to 70%, show that demand is still strong despite financial limitations.
Essential Considerations for Mortgage Holders
Recent arrears data points to continued stability across Australia’s mortgage market.Only 0.55% of home loans are between 30 and 89 days past due, according to APRA data, which is significantly lower than previous stress levels and shows that borrowers are mostly making their repayments despite rising interest rates.
Since 2021, prudential measures like conservative lending rules and serviceability buffers have reduced risk accumulation while maintaining credit availability. With less than 1% of mortgages having negative equity and being backed by high property values, strong equity balances also act as a buffer.
Employment conditions remain central to this resilience. With unemployment at 4.1%, most borrowers retain sufficient income to service their loans, while any sustained weakening in the labour market would present the main risk to arrears remaining low.
The data also emphasises the significance of early assistance, and borrowers are urged to contact lenders as soon as repayment pressure develops. Lenders may provide hardship options like loan restructures or payment deferrals, and agencies like the National Debt Helpline at 1800 007 007 can provide free, private assistance.
