Australians Are Further Ahead on Their Loans Than Before COVID

The Westpac-Melbourne Institute Consumer Sentiment Index fell 12.5 per cent in April to 80.1, its biggest fall since COVID. But the Reserve Bank has just released data showing the opposite story: Australian households are further ahead on their loans than they were before COVID hit.

The RBA's March 2026 Financial Stability Review found that the median mortgage prepayment buffer is now larger than pre-pandemic levels for every income group. Not just higher earners. Every quartile. Mortgage arrears have fallen back to where they were before 2020, and only around 1% of variable-rate owner-occupiers are in genuine cash flow difficulty, down significantly from mid-2024.

What it means for borrowers

The gap between how Australians feel about their finances and how they're actually performing is wider than it's been in years.

Real disposable income per capita kept rising through 2025, even as rate rises bit. Households with mortgages have kept making extra payments into offset and redraw accounts, adding to their buffers. And the RBA's stress testing found that even in a scenario where housing prices fell 40%, around 80% of borrowers would still have positive equity.

None of this means things are easy. Fuel prices are elevated, grocery costs haven't come back down, and anyone who fixed their rate in 2021 has already felt the reset. But the aggregate picture is clear: most households absorbed the rate cycle and came out with their buffers intact.

What it means for the economy

When households are ahead on their mortgages, the flow-on effects are significant. People with buffers are less likely to default, less likely to cut spending sharply, and more likely to maintain the kind of steady consumption that keeps businesses trading. The RBA noted that these buffers would likely allow most households to navigate a trade disruption, a labour market downturn, or a further period of higher rates without severe stress.

For business owners, that matters. Your customers are more resilient than the sentiment surveys suggest.

What to do

Start by checking your actual position. Log into your lender's app or portal and look at what's sitting in your offset or redraw account. Check how many months ahead you are on your scheduled payments. Most people set these up years ago and haven't looked since.

If you're six or more months ahead, you're what lenders classify as a low-risk borrower. That is a bargaining position. Lenders are competing hard for business right now, and they don't voluntarily offer their best rate to people who aren't asking. A five-minute call to your lender requesting a rate review, or a conversation with a broker who can run a panel comparison, could close a gap you didn't know existed.

If your buffer is thinner than you'd like, the RBA data still offers something useful: real incomes grew through 2025, which means your serviceability position has likely improved over the past 12 months even if your savings haven't. The gap between what you owe and what your income can support has probably widened in your favour. That's worth knowing before you make any decisions based on the mood alone.

This article is general information only and is not financial advice.