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The warnings come following the publication of a relatively optimistic report from the Commonwealth Bank of Australia (CBA), which suggested households are better positioned to weather higher interest rates than during previous tightening cycles, pointing to stronger savings buffers and lower mortgage debt relative to income.
The major bank attributed this to several factors, including lower mortgage debt relative to household income, growing deposit balances and the proportion of borrowers who maintained higher mortgage repayments after interest rates were cut last year.
Housing debt currently stands at 115 per cent of household income, around 9 percentage points lower than when the RBA began increasing rates in 2022. Meanwhile, deposits as a proportion of income have steadily increased over the past 25 years.
CBA also found that around 85 per cent of its mortgage customers did not request lower repayments following the three cash rate cuts in 2025, meaning the first three rate increases this year would have had relatively little impact on their cash flow.
However, the proportion of mortgages on fixed rates is also close to its lowest level since at least 2010, increasing the speed at which interest rate changes are passed through to borrowers.
CBA estimated that a 25 basis point rate increase currently reduces household income by around 0.11 per cent, compared with 0.13 per cent immediately before the pandemic.
However, the bank acknowledged that household financial positions “varied considerably”, with some borrowers holding significantly smaller savings buffers than others.
Brokers report weaker conditions
Nathan Hawes, founder and managing director of Eaglevision Financial, said he was seeing a deterioration in clients’ financial positions, with rising rates bringing many borrowing decisions to a standstill.
“Given the rate rises I feel clients are just stopped in their tracks. Not doing anything, buying or refinancing because they are afraid of more rate rises,” Hawes said.
“Savings buffers they once had are nearly gone. They were in a good position but not anymore.”
Hawes said borrowers had built up savings and confidence when interest rates began falling last year, but the latest increases had reversed that progress.
He added: “Now with the rate rises they have depleted most savings and are fearful of where it will all end? How many more rises? This is causing fewer mortgage deals than I can remember.”
Borrowers turn to alternative repayment strategies
Matt Turner of GSC Finance said he was seeing fewer clients with substantial savings buffers, with some increasingly turning to their existing property equity to create additional financial breathing room.
“Less and less of our clients have any form of substantial buffers in place. Some are beginning to pull equity to create a buffer and others are looking at different options such as extending loan terms or interest-only periods,” Turner said.
He said existing borrowers were feeling the greatest impact from current economic conditions, as higher repayments continued to erode the savings they had previously accumulated.
“The current conditions are definitely having more of an impact on those with finance as the increased payments are wiping away all buffers in place,” he said.
Now, Turner said some borrowers were considering downsizing or selling their properties altogether to reduce their financial commitments, while others were taking on additional debt to establish a savings buffer.
“We have had some increase their debt to have a buffer in place whilst cash flow is still covering debt but want to have rainy day money,” he said.
Hawes added that many existing borrowers were also reluctant to switch lenders, as they were often already benefiting from competitive mortgage rates.
“Existing borrowers are not changing their lender because the chances are they are on a good rate. So switching is not worth it,” he said.
Falling property prices add to uncertainty
CBA also warned that falling property prices could weigh on household spending, forecasting a 14 per cent peak-to-trough decline in national dwelling values.
The bank estimated that the decline would translate into a 16.6 per cent fall in real housing wealth and a 7 per cent decline in real household net worth, assuming equity prices remained resilient.
It said weaker housing prices could affect spending by reducing household wealth, discouraging property transactions and lowering the gains realised by home owners selling their properties.
Hawes SAID: “Those that are trying to buy and sell in the same market are finding it even more difficult as there are no guarantees they will sell, which is causing stress.”
[Related: Falling house prices fail to budge borrowing power]
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