What Do Australia’s Banks Know About Mortgage Stress That We Don’t?

I’ve been speaking with quite a few business owners recently, including builders, property professionals and people running local businesses. The message has been remarkably similar. Costs continue to increase, customers are becoming more cautious about spending and maintaining a reasonable profit margin is becoming increasingly difficult.

At the same time, Australia’s major banks are announcing thousands of job cuts, unemployment has been rising and we’re facing the possibility of another interest rate increase on Melbourne Cup Day.

It got me thinking about how much financial pressure is actually building across Australian households, and whether the mortgage stress figures we regularly hear about are telling us the full story.

Why are Australia’s banks cutting thousands of jobs?

On 20 October, NAB announced plans to reduce its workforce by up to 2,500 positions during the 2027 financial year, representing approximately 6% of its workforce. Up to 1,500 positions could go before the end of 2026.

Westpac has also been reducing staff numbers, with reports of another 242 roles affected in October. The Finance Sector Union says around 1,000 Commonwealth Bank positions have gone this year, while ANZ previously announced plans to reduce its workforce by approximately 3,500 positions by September 2026.

Banks restructure for many reasons, including automation, technology and operating efficiency. These job cuts certainly don’t prove that a mortgage crisis is coming.

However, NAB specifically referred to more challenging economic conditions in its announcement.

When several of Australia’s largest financial institutions are reducing their workforces, I think it’s reasonable to question what they are anticipating over the next few years.

Banks have access to enormous amounts of information about how Australians are managing their finances, including information that doesn’t appear in the official mortgage arrears statistics.

Are Australia’s mortgage stress figures telling us the full story?

According to APRA, non-performing residential housing loans represented 1.01% of outstanding lending by value in June 2026, compared with 1.04% a year earlier. Loans between 30 and 89 days overdue accounted for another 0.54%.

On the face of it, those figures are relatively reassuring.

But there is a significant difference between someone who has already fallen behind on their mortgage and someone who is doing everything possible to avoid getting to that point.

A household might be cutting back on groceries, cancelling holidays, reducing spending or drawing down savings to keep meeting repayments. Others may already have approached their bank for temporary assistance.

These households aren’t necessarily captured in the headline mortgage arrears figures.

The RBA’s October Financial Stability Review estimates that around 2% of variable-rate owner-occupier borrowers are experiencing a cash flow shortfall, meaning their income isn’t sufficient to cover mortgage repayments and essential living expenses.

The RBA also reports that most borrowers have savings buffers and that the overall financial position of Australian households remains relatively strong. That is encouraging.

However, it also acknowledges that formal hardship arrangements have increased, although they remain at relatively low levels.

This is what interests me. Banks can see repayment arrangements, hardship applications, changes in spending patterns and reductions in savings balances well before someone becomes 90 days overdue on their mortgage.

Regulators receive detailed banking information, but the public doesn’t necessarily see the same early indicators.

What are the banks’ own figures showing?

Commonwealth Bank’s FY26 results reported home loan arrears of 0.73%, alongside more than 147,000 tailored payment arrangements. Its loan impairment expense increased by 9% to $788 million.

These figures require some caution. Payment arrangements aren’t necessarily evidence of serious hardship, and impairment expenses cover lending beyond residential mortgages.

Nevertheless, they illustrate why looking at missed mortgage repayments alone may not provide the complete picture.

Westpac has also disclosed that changes in how certain hardship arrangements are classified would increase its reported mortgage delinquency figures, although it described the impact on credit quality as immaterial.

With Westpac scheduled to release its full-year results on Monday, immediately before the RBA’s decision, the latest information will be worth examining.

Rising unemployment is what concerns me most

The latest ABS figures show Australia’s unemployment rate reached 4.7% in September 2026, with approximately 732,000 people unemployed.

That’s 55,200 more unemployed Australians than a year earlier, while employment fell by 39,300 during September alone.

These figures aren’t historically alarming, but the direction deserves attention.

Another 0.25 percentage point interest rate increase would add approximately $100 per month to repayments on a $600,000 mortgage over 30 years, depending on the loan’s existing interest rate.

For some households, that’s manageable. For others, it means cutting back even further.

But losing a job while carrying a substantial mortgage is a completely different situation.

When households reduce spending, local businesses feel it. Those businesses may then reduce staff, postpone investment or struggle to remain profitable.

This is something I’m hearing increasingly in conversations with business owners.

And when employment becomes less secure, the financial consequences can extend well beyond the individual household.

Do higher interest rates benefit the banks?

There is another aspect worth considering.

Higher interest rates can increase the interest income banks receive from variable-rate mortgages, although their own funding costs generally rise as well.

Commonwealth Bank reported a net interest margin of 2.05% in FY26, up three basis points.

Of course, higher rates can also increase mortgage arrears, credit losses and competition as borrowers look for better deals. Banks don’t automatically become more profitable every time the RBA raises rates.

But households with variable-rate mortgages generally feel the financial impact relatively quickly.

And many of the expenses putting pressure on those households, including insurance, energy, groceries and construction costs, aren’t necessarily problems that higher interest rates can directly resolve.

I understand why the RBA uses interest rates to manage inflation. Leaving inflation unchecked would create its own problems.

My concern is whether we fully appreciate how much additional pressure some households and businesses can absorb.

What can Australia learn from the UK and Canada?

Australia isn’t the only country dealing with these challenges.

In July, the Bank of England estimated that more than five million UK households would face higher mortgage repayments by the end of 2028. Around 750,000 households coming off fixed mortgage rates below 3% were expected to face average increases of approximately £170 per month.

Yet UK mortgage arrears remained relatively low.

Canada faces a similar challenge, with its banking regulator estimating that approximately 3.1 million mortgages, representing 52% of the total, would come up for renewal by the end of 2027.

Many were taken out when interest rates were considerably lower.

What interests me is that both countries have published estimates of future mortgage repayment pressures, rather than relying entirely on borrowers who have already fallen behind.

I would like to see more of this information made available in Australia.

What does this mean for Australia’s property and construction industry?

As a quantity surveyor, I see how financial pressure can move through the property and construction industry.

When households reduce spending, businesses become cautious. When businesses postpone investment, construction projects can be delayed or cancelled.

Developers are already dealing with rising construction costs, higher financing expenses and projects that are becoming increasingly difficult to make financially viable.

Builders and subcontractors are operating in an environment where costs have increased substantially, yet customers aren’t always willing or able to pay more.

The RBA has also highlighted elevated insolvencies in industries including construction and hospitality.

We are supposed to be delivering 1.2 million new homes over five years, but achieving that target requires financially viable projects, available funding and a construction industry capable of delivering them.

If borrowing costs continue increasing while employment and consumer spending weaken, that becomes even more challenging.

I’m not suggesting Australia is heading towards a banking collapse or a major property crash. Our banks remain well capitalised, and most Australian mortgage holders continue to meet their repayments.

But I do wonder whether we’re paying enough attention to financial pressure that develops long before a household actually misses a mortgage payment.

Should we have a clearer picture before another interest rate rise?

The RBA meets on Tuesday, 3 November, with major bank economists expecting another 0.25 percentage point increase, potentially taking the cash rate from 4.60% to 4.85%.

Inflation remains a genuine concern, and the RBA has difficult decisions to make.

However, with unemployment rising, businesses reporting more cautious spending and households already adjusting their finances, I think we should be asking for greater transparency around the early signs of mortgage stress.

Not simply how many people are 90 days behind on their repayments, but how many are seeking hardship assistance, drawing down savings or struggling to cover essential expenses.

Banks already hold much of this information, while the RBA and APRA receive detailed financial data through their regulatory responsibilities.

More regular public reporting of aggregated early warning indicators would help Australians better understand where financial pressure is developing, without compromising individual privacy.

Because by the time mortgage defaults begin rising significantly, the problems behind them may have been building for months.

If Australia’s banks can identify financial stress before it appears in the official mortgage arrears figures, shouldn’t the public have a clearer picture of what’s happening before more pressure is placed on Australian households?

Sources and further reading

• Reserve Bank of Australia, Financial Stability Review, October 2026
• Australian Prudential Regulation Authority, Quarterly ADI Property Exposure Statistics, June 2026
• Australian Bureau of Statistics, Labour Force, September 2026
• NAB, Operating Model and Workforce Announcement, 20 October 2026
• Commonwealth Bank, FY26 Full Year Results
• Westpac, FY26 Results Disclosures, October 2026
• ANZ, Workforce Restructuring Announcement, September 2025
• Bank of England, Financial Stability Report, July 2026
• UK Finance, Mortgage Arrears and Possessions, Q2 2026
• OSFI Canada, Annual Risk Outlook 2026-2027