Younger borrowers, high debt levels, and weaker economic conditions driving mortgage complications across the state
Homeowners in Victoria, including those in Melbourne, have seen the steepest rise in mortgage arrears across Australia, according to the central bank’s latest Financial Stability Review.
The Reserve Bank of Australia (RBA) attributed the trend to several factors, including larger average loan balances and reduced cash reserves among borrowers in the state.
“In part, this reflects that a higher share of borrowers in Victoria have both larger loan sizes and smaller cash buffers than other states, which have made them slightly less resilient,” the RBA said in its semi-annual report.
Demographic differences also play a role, the RBA noted, pointing out that Victoria has a higher share of younger households. “These borrowers are more likely to have younger loans that have had less time to amortize,” the central bank said.
The state’s economic performance has also lagged behind other regions. Victoria’s unemployment rate reached 4.6% in February, higher than the national average. At the same time, house prices in Melbourne remained 5.6% below their 2022 peak as of March.
The RBA said it believes a greater proportion of homeowners in Victoria are facing cash flow pressures, particularly in regional parts of the state. While this doesn’t always lead to defaults, the bank warned that without adjustments in spending or income, some households could fall behind on repayments.
Despite these concerns, the central bank maintained that all states and territories remain generally resilient. Reinforcing the broader stability, Fitch Ratings’ Dinkum RMBS Index for Q4 2024 showed a continued decline in national mortgage arrears, even as cost-of-living pressures persist.
“Even in Victoria, where there is a relatively larger share of borrowers with both higher debt and lower cash buffers, it is estimated that the vast majority would be able to continue servicing their loans if, for example, interest rates were to remain high for longer or if the labour market were to deteriorate significantly,” the RBA said.
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