Two back-to-back cash rate hikes should not impact the majority of mortgage holders when it comes to affording repayments, the Reserve Bank says.
The RBA’s latest Financial Stability Review confirms the financial position of most households is considered “strong”, with most borrowers having enough money to cover both mortgage repayments and essential expenses.
While the bank said cash flow pressures had dropped off notably since mid-2024, it warned pressures are “expected to increase” moving forward.
The RBA said its forecasts show Aussies should expect to have less money coming in than before, with "some deterioration in cash flow positions over the next year or so".
Households are trapped in interest rate uncertainty after another cash rate hike on Tuesday took rates to an eight-month high of 4.1%.
While significant easing in 2025 off the back of three cash rate cuts strengthened many household’s financial positions, borrowers have been left reeling by recent comments from the central bank suggesting there is little clarity on how far rates will rise this year.
Oil prices have risen significantly throughout March. Picture: Getty
Market volatility from the escalating conflict across Iran and the Middle East has caused sharp spikes in oil prices over the last two weeks.
Impacts on Australia’s already too-high inflation situation are widespread, with the war-induced energy shocks pushing up fuel prices across Australia.
The bank acknowledged “further cost pressures”, though said it does not anticipate widespread financial stress in response to higher inflation or interest rates.
Quizzed by media on Tuesday following the RBA’s second rate rise in six weeks, RBA governor Michele Bullock warned against trying to predict a pattern in the banks’ decisions.
RBA governor Michele Bullock says the bank's forecasting is very uncertain. Picture: Martin Ollman
“We can’t do anything about the inflation rate that is going to pop out over the next few quarters,” Ms Bullock said.
“I can’t say if this is front loading or the first hikes of many. What we might be able to do and what we are hoping to do is bring excess demand down.”
While many Aussies are battling budget pressures, the Financial Stability Review notes there are far fewer mortgage holders in stress than there were two years ago.
“While the risk of a more material adverse global shock has increased over recent weeks, the strong financial position of most borrowers means that the household and business sectors are unlikely to be a source of systemic instability,” it read.
Source: RBA
“The vast majority of borrowers continue to have sufficient income to cover their scheduled mortgage repayments and essential expenses.
“The 50-basis point increase in the cash rate since the start of the year and increases in oil and gas prices over recent weeks stemming from the escalation of conflict in the Middle East are not estimated to have changed this picture materially.”
Just over 1% of owner-occupiers with a variable rate mortgage were experiencing cash flow shortfalls at the end of last year, the review found, with lower inflation in 2025 having added to disposable income.
The share of borrowers most likely to fall behind on home loan repayments due to lower savings was sitting at 0.3%.
Source: RBA
The RBA also found there are fewer loans being taken out to cover financial hardship than in 2024, with figures back around pre-pandemic levels.
The amount of households drawing down on pre-payment buffers is still above figure seen during Covid, though lower than 2024 levels.
Aussies made the most of last year’s rate cuts to pull back on home loan repayments, with the RBA finding scheduled payments declined over the course of 2025.
“At the same time, households with mortgages have continued to make extra payments into offset and redraw accounts, adding to their savings buffers,” it noted.
While the bank said experiences “vary significantly across different household types”, it said most borrowers have large buffers to help withstand shocks.
Coming into winter and with more rate hikes likely just around the corner, these reserves may well be needed.
All of Australia’s big four banks are expecting another rate rise when the bank meets again on 5 May.
“Excess demand needs to slow to bring inflation back to target and protect against second order impacts from higher inflation,” Commonwealth Bank head of Australia economics Belinda Allen said.
“We retain our call for a rate hike in May given the current economic climate and the need to close the output gap.”
This article first appeared on Mortgage Choice and has been republished with permission.
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