From WA to the East Coast: Shift in Mortgage Arrears Trend Revealed

Mortgage arrears borrowers falling behind on their home loan repayments are a critical indicator of financial stress in the housing market and the broader economy. In Australia, recent data reveals a notable geographic shift in mortgage arrears trends, moving from Western Australia (WA) toward the eastern states. This shift reflects underlying economic, demographic, and housing market dynamics that are reshaping borrower risk profiles across the country.

This comprehensive article explores the latest trends in mortgage arrears, the factors driving this eastward shift, and what it means for borrowers, lenders, and policymakers. Drawing on data from the Australian Prudential Regulation Authority (APRA), the Reserve Bank of Australia (RBA), and industry experts, we provide an educational and detailed analysis to help readers understand the evolving mortgage landscape in 2025.

Understanding Mortgage Arrears: Definitions and Context

Mortgage arrears occur when borrowers miss scheduled repayments on their home loans. Typically, arrears are classified as:

• 30 to 89 days overdue: Loans that are past due but may still be recoverable without enforcement.
• 90+ days overdue or impaired: Loans where repayment is significantly delayed or unlikely without lender intervention.

Arrears rates are a key measure of borrower stress and financial system health. High arrears can signal economic distress, rising unemployment, or housing market downturns, while low arrears generally indicate borrower resilience.

Australia’s Mortgage Arrears Landscape in 2025

National Overview

According to APRA data for the March 2025 quarter, mortgage arrears edged up slightly from 1.64% in December 2024 to 1.68% but remain well below the pandemic-era peak of 1.86% recorded in mid-2020. This modest increase reflects seasonal factors and some cost-of-living pressures, but overall demonstrates strong borrower resilience despite high interest rates and inflation.

Regional Shift: From WA to the East Coast

Historically, Western Australia experienced relatively higher mortgage arrears, partly due to its reliance on the mining sector and regional economic fluctuations. However, recent trends show a shift in arrears concentration toward the eastern states, particularly New South Wales (NSW), Victoria, and Queensland.

This geographic movement is significant because it highlights changing economic conditions and housing market pressures across Australia’s regions.

Factors Driving the Shift in Mortgage Arrears

1. Economic and Employment Trends

• WA’s Recovery: WA’s economy has rebounded strongly from the mining downturn, with low unemployment and rising incomes reducing borrower stress.
• Eastern States’ Pressures: The east coast faces tighter housing affordability, higher living costs, and pockets of economic uncertainty, especially in lower-income segments, contributing to rising arrears.

2. Housing Market Dynamics

• Price Growth and Negative Equity: Eastern capitals like Sydney and Melbourne have seen strong house price growth, which generally protects borrowers from negative equity, a key factor in preventing defaults. However, affordability pressures have increased debt servicing burdens for some borrowers.
• WA’s Stabilizing Market: WA’s housing market has stabilized, with moderate price growth and less speculative activity, lowering arrears risk.

3. Interest Rate Environment

• Since 2022, variable mortgage rates have increased by approximately four percentage points, raising monthly repayments by over $1,500 for a typical $750,000 loan. Despite this, low unemployment (4.1% nationally in May 2025) and strong labor markets have helped borrowers maintain repayments.
• The RBA’s policy of assessing serviceability with a 3% buffer above actual rates has limited risky lending, contributing to low arrears overall.

4. Borrower Behavior and Savings

• Many households have drawn on savings accumulated during the pandemic, with the household saving ratio remaining above 10% from mid-2020 to early 2022.
• Borrowers have also cut discretionary spending to prioritize mortgage repayments, exemplified by the “wagyu and shiraz” analogy—sacrificing luxuries to keep up with loan commitments.

Detailed Regional Analysis

The “Double Trigger” Hypothesis

The RBA has articulated a “double trigger” theory for mortgage arrears to rise significantly:

1. Inability to repay: Borrowers must struggle with servicing their debt due to income shocks or increased costs.
2. Negative equity: The borrower’s home value falls below the outstanding mortgage balance, removing the option to sell to avoid default.

Currently, fewer than 1% of Australian households are estimated to be in negative equity, providing a buffer that limits defaults despite higher repayments. This explains why arrears remain low even as interest rates have risen sharply.

Mortgage Arrears by Borrower Risk Profiles

• High Loan-to-Value Ratio (LVR) Borrowers: Arrears peaked at around 2.5% in 2024 but have been falling in 2025.
• High Loan-to-Income (LTI) Borrowers: Arrears reached approximately 1.5% but are also trending down.
• Lower-Income Households: Tend to have higher arrears but remain generally contained due to strong employment and prudent lending.

Mortgage Refinancing and Credit Demand

Despite some increases, credit demand remains robust. Mortgage refinancing surged in early 2025, driven by borrowers seeking better loan terms amid expectations of future rate cuts. External refinancing inquiries exceeded 20% of mortgage applications in March 2025, the highest since 2023.

Refinancing activity provides borrowers with opportunities to reduce repayments or consolidate debt, which can help mitigate arrears risk.

Industry and Expert Perspectives

• APRA and RBA: Emphasize the resilience of borrowers, strong lending standards, and the importance of stable labor markets in keeping arrears low.
• S&P Global Ratings: Projects mortgage arrears will remain low in 2025 due to falling interest rates and stable inflation, despite ongoing cost-of-living pressures.
• Mortgage Brokers: Note increased borrower engagement in refinancing and loan reviews, reflecting proactive management of mortgage stress.

Implications for Borrowers, Lenders, and Policymakers

For Borrowers

• Stay Informed: Monitor interest rate movements and consider refinancing options to manage repayments.
• Budget Carefully: Prioritize mortgage repayments and reduce discretionary spending if needed.
• Seek Help Early: Engage with lenders or financial counselors if repayment difficulties arise.

For Lenders

• Maintain Prudent Lending: Continue assessing borrower capacity with appropriate buffers.
• Monitor Regional Trends: Pay attention to shifting arrears patterns and tailor risk management accordingly.
• Support Borrowers: Offer flexible repayment options and refinancing solutions to reduce defaults.

For Policymakers

• Address Affordability: Implement policies to improve housing supply and reduce cost pressures, especially on the East Coast.
• Support Employment: Maintain labor market strength to underpin borrower income stability.
• Monitor Financial Stability: Ensure regulatory frameworks adapt to evolving risks in regional housing markets.

The Road Ahead: Outlook for Mortgage Arrears

Looking forward, several factors will influence mortgage arrears trends:

• Interest Rate Cuts: The RBA is expected to reduce rates later in 2025, which should ease repayment pressures and help lower arrears.
• Housing Market Conditions: Rising house prices will continue to limit negative equity, supporting borrower resilience.
• Economic Uncertainty: Global risks and cost-of-living pressures remain potential headwinds.
• Regional Variations: The shift from WA to the east coast may continue, requiring targeted responses.

Conclusion

The shifting trend in mortgage arrears from Western Australia to the eastern states reflects broader economic and housing market dynamics in Australia. Despite rising interest rates and cost pressures, mortgage arrears remain historically low due to strong labor markets, prudent lending, and borrower resilience. However, the geographic shift signals emerging vulnerabilities, particularly in affordability-stressed eastern capitals.

For borrowers, lenders, and policymakers, understanding these trends is crucial to managing risk and supporting sustainable homeownership. With anticipated interest rate cuts and ongoing economic adjustments, mortgage arrears are expected to remain contained but will require close monitoring, especially in regions experiencing rising financial stress.

This article is based on the latest data and expert analysis as of July 2025, including insights from APRA, the RBA, S&P Global Ratings, and industry commentators.

1. https://www.mpamag.com/au/mortgage-industry/industry-trends/mortgage-arrears-stay-low-despite-high-rates-and-costs/540254         
2. https://www.brokernews.com.au/news/breaking-news/mortgage-arrears-remain-low-despite-high-interest-rates-287448.aspx     
3. https://www.corelogic.com.au/news-research/news/2025/mortgage-arrears-remain-contained-despite-high-rates-and-cost-of-living-pressures   
4. https://www.mpamag.com/au/mortgage-industry/industry-trends/from-wa-to-the-east-coast-shift-in-mortgage-arrear
5. https://www.corelogic.com.au/__data/assets/pdf_file/0027/27576/Cotality_APRAStandards_PressRelease.pdf 
6. https://www.brokernews.com.au/news/breaking-news/mortgage-refinancing-surges-amid-rising-arrears-in-australia-287306.aspx 
7. https://azurafinancial.com.au/mortgage-arrears-to-stay-low-in-2025/