Benefit of falling prices being cancelled out by higher borrowing costs, warns Westpac boss
The chief executives of two of Australia’s big four banks have told a parliamentary inquiry that mortgage arrears will keep rising through 2027, as five interest rate rises since February 2026 and persistent inflation stretch household budgets.
Westpac chief executive Anthony Miller told the committee on Thursday that the share of Westpac borrowers at least 90 days behind on their home loan repayments could rise by more than a third over the next 12 months.
“We know that many are doing it tough,” Miller said.
He expects arrears to follow the pattern of 2022 and 2023, the last time the Reserve Bank of Australia (RBA) raised rates sharply to bring down inflation. On that path, Westpac’s 90-day arrears would rise from 0.67% at the end of September 2026 to somewhere between 0.79 and 0.91%.
Miller’s comments come after the RBA lifted the cash rate to 4.85%, its highest since 2008, at its November 2026 meeting.
Mortgage arrears rising across the majors
ANZ chief executive Nuno Matos (pictured) told the committee that no major lender would escape the trend.
“It is on the rise because cost of living is on the rise,” Matos said. “We should expect those numbers to continue to deteriorate. I don’t expect them to go to a historically bad place, but they will get worse before they get better.”
The latest bank results support his view. In ANZ’s full-year result, which showed delinquencies climbing, 90-plus-day arrears rose 12 basis points over six months to 0.95%.
Commonwealth Bank’s first-quarter trading update revealed falling applications alongside 90-day arrears of 0.8%, a 14-year high. NAB added $403 million in forward-looking provisions in its full-year result to reflect tougher economic conditions.
Negative equity is also growing. Borrowers are in negative equity when they owe more on their mortgage than the property is worth. Matos said 2.3% of ANZ borrowers are now in that position, up from 1.7% a year ago, as house prices fall. Hardship cases at the bank rose 10% over six months, although Matos said they remain low at five in every 1,000 customers and that the banking system is well capitalised.
What does APRA’s warning mean for borrowers?
The Australian Prudential Regulation Authority (APRA) is watching the same numbers. In its annual risk update released on Thursday, the regulator said risks to financial stability would grow if a sharper fall in house prices coincided with a substantial rise in unemployment or tighter credit.
“For affected households, this could mean greater difficulty keeping up with repayments, a need to cut spending or, in some cases, having to sell their property,” APRA said.
The regulator also pointed to the size of household balance sheets. “Aggregate household debt is around 180% of disposable income, which is high by historical and international standards. Highly indebted households and those with limited buffers have less capacity to absorb income losses or higher living costs,” it said.
Borrowing capacity squeezed despite falling prices
Lower house prices have not made buying easier. Under questioning from Liberal MP Simon Kennedy, Miller agreed that the benefit of falling prices had been cancelled out by higher borrowing costs. He said a one percentage point rise in rates typically cuts a borrower’s capacity by about 10%.
That squeeze is showing up in loan pipelines. Commonwealth Bank of Australia (CBA) said home loan applications fell 16% in the September 2026 quarter compared with a year earlier.
“With higher interest rates and cost-of-living pressures continuing to impact customers unevenly, we remain focused on supporting our customers,” said CBA chief executive Matt Comyn.
ANZ’s base-case forecasts, which it uses to set loan-loss provisions, assume national home prices fall 4.3% in 2026 and a further 3.4% in 2027.
Confidence down, down, down
Borrower confidence has dropped sharply. The Westpac-Melbourne Institute index showed consumer sentiment among mortgage holders hit a record low of 68.1 in November 2026, and 72% of mortgage holders surveyed after the RBA’s latest decision expect rates to rise again.
Wendy Brown, head of home loan and commercial broker sales at Macquarie Bank in Sydney, told MPA after Macquarie’s half-year result showed its broker-led book passing $200 billion that customers were looking much more closely at their finances.
“We’ve seen plenty of change in the market over the past year, with customers taking a much closer look at their finances, reassessing their home loan options and considering whether refinancing could make sense for them. Brokers are often at the centre of those conversations, helping customers understand their options and navigate what can be a complex process,” Brown said.
Relief may be limited. Economists surveyed by The Australian Financial Review earlier this month broadly expect the RBA to hold from here, but even a pause leaves the five 2026 increases working through household budgets. Comyn and NAB chief executive Andrew Irvine are scheduled to appear before the inquiry on Friday.
