Low deposit lending continues to break the record books, with the proportion of new owner-occupier loans with a 5% deposit or less hitting a record high in the June quarter.
While this only represents 4.31% of all new owner-occupier loans written in the quarter, according to APRA data released today, the timing is concerning, with property prices on the slide across the nation.
A total of $15.6 billion in low deposit loans have been taken out in the nine months of available data since the uncapping of the government’s Home Guarantee scheme (October 2025 - June 2026).
Much of this lending is likely to be close to or in negative equity.
Value of new owner-occupier loans with deposits of 5% or less | ||
|---|---|---|
Amount | % of new owner-occ loans | |
December 2025 quarter | $5.4 billion | 4.03% |
March 2026 quarter | $4.8 billion | 4.26% |
June 2026 quarter | $5.3 billion | 4.31% |
TOTAL (Oct - June) | $15.6 billion | 4.19% |
Source: APRA Quarterly authorised deposit-taking institution property exposures statistics.
Arrears tick up again on back of rate hikes
The value of mortgages in arrears by 90 days or more is now sitting at $25.9 billion, as some borrowers struggle to keep up with their repayments under the pressure of three cash rate hikes this year.
While this figure represents just 1.01% of all mortgages, it is the second quarterly rise and now above the historical average since 2019 of 0.93%.
The value of mortgages 30 to 89 days past their due date also rose for the second quarter in a row to 0.54% of all credit outstanding.
These figures are expected to continue to rise as the mounting pressure of higher rates pushes more people into financial distress.
Offset balances take biggest quarterly dive on record during EOFY sales
Money in offset accounts made a record drop, in dollar terms, of $8.6 billion in the June quarter.
While some of this drop could potentially be attributed to rising rates, offset balances almost always drop in the June quarter as a result of EOFY spending. The surge in EV purchases may also have played a role.
Nevertheless, money in offset accounts remains at near record highs at $340 billion. That’s an increase of $38.6 billion from the previous year.
Total amount in residential offset accounts | ||
|---|---|---|
June quarter 2026 | Change from previous quarter | Change from June quarter 2025 |
$340.5 billion | -$8.6 billion -2.5% | +$38.6 billion +12.8% |
Source: APRA Quarterly authorised deposit-taking institution property exposures statistics.
Interest-only lending on the rise but nowhere near record highs
The APRA data shows 24% of new mortgages taken out in the June quarter were on interest-only terms.
This is a rise of 3 percentage points from the previous year when 21% of new mortgages taken out were interest-only.
While this rise won’t go unnoticed by the regulator, it is nowhere near the peak in mid 2015 when almost half (46%) of new mortgages began on interest-only terms. It is, however, nearing the regulator’s previous cap on new loans which, back in 2017 was 30%.
Across the entire loan book, the value of loans on interest-only terms rose marginally, sitting at 12%.
Refinancers continue to break free of mortgage prison
A total of $11.6 billion new residential mortgages were processed as exceptions to serviceability in the June quarter of 2026, which equates to 5.8% of all new loans settled in the quarter – the highest on record.
These loans are processed as exceptions where they don’t meet the standard 3 percentage point stress test, provided the borrower meets a list of other key checks and balances.
The value of these loans are up almost 400% since before COVID (June 2019 - June 2026 quarters).
Value of new loans processed as exceptions to serviceability | |
|---|---|
June quarter 2026 | Change from previous quarter |
$11.6 billion (5.8% of all lending) | +$2.3 billion +24% |
Source: APRA Quarterly authorised deposit-taking institution property exposures statistics.
Reverse mortgages continue to rise in popularity
The value of reverse mortgages on the books of the banks continued to increase in the June 2026 quarter, totalling $4.4 billion.
While this is an increase of 110% from three years ago it still represents just 0.2% of the entire loan book.
These figures, however, do not include reverse mortgages offered by the government or non-bank lenders.
Value of reverse mortgages on banks’ mortgage books | ||
|---|---|---|
June quarter 2026 | Change from 1 yr ago | Change from 3 yrs ago |
$4.4 billion | $345 million | +$2.3 billion |
Source: APRA Quarterly authorised deposit-taking institution property exposures statistics.
Mortgage arrears are starting to flash amber
Canstar’s Data Insights Director, Sally Tindall, says, “The number of borrowers getting into the property market with barely any skin in the game has surged yet again, at the same time the housing market is shifting into reverse.”
“More than $15 billion worth of owner-occupier mortgages have been written with deposits of 5 per cent or less since the government’s Home Guarantee Scheme was uncapped last October.
“Buying with a 5 per cent deposit can get you through the front door, but it doesn’t give you much of a safety net once you’re inside.
“While many of these borrowers, particularly in Sydney and Melbourne, are likely to be in negative equity, if they can keep their head down and their mortgage payments up, they should be able to rise out of what can potentially become a tricky financial position.
“Mortgage arrears are starting to flash amber, with the share of loans behind by 90 days or more now sitting above its post-2019 average.
“The rise is still relatively small in the grand scheme of things, but the direction of travel matters, particularly after three cash rate hikes this year and another one likely to arrive before Christmas.
“Borrowers have been remarkably resilient through the rate cycle, but resilience isn’t an infinite resource.
“Australians pulled $8.6 billion out of mortgage offsets in the June quarter, the biggest quarterly fall on record although this doesn’t necessarily equate to financial distress en masse.
“June is traditionally a bumper month for spending and from what we can see in the ABS data, new EV sales were leading the charge.
“Interest-only lending is making a comeback, however, it’s nowhere near the levels that prompted APRA to intervene almost a decade ago.
“Almost one-in-four dollars of new lending was written on an interest-only basis in the June quarter, up from the lows we saw after APRA introduced its lending cap.
“With household budgets already under pressure, borrowers, particularly owner-occupiers considering an interest-only loan need to be very clear about what their budgets will look like when the principal-and-interest repayments kick in.
“None of these figures, on their own, suggest we’re staring down the barrel of a mortgage crisis. However, together, they show some cracks starting to appear in the household balance sheet.”
