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For many Australian homeowners and property investors, 2026 could feel like the year when pressure finally catches up.
Despite the cumulative 75 basis point cuts to the country’s official cash rate a year ago, interest rates have stayed higher for longer, household expenses continue to climb, and borrowers who took out home loans during the ultra-low rate era are now feeling the squeeze of mortgage stress.
What is mortgage stress?
Mortgage stress is a financial strain experienced by homeowners finding difficulty meeting their home loan repayments on top of covering their bills and other living expenses. It typically occurs when more than 30% of a household gross income goes towards servicing their home loan and other associated housing costs.
Quick note: This “30%” threshold has long been used by banks, economists, property experts, and the media.
While there is no single official definition, some housing researchers add a second layer to measure whether a household is under mortgage stress, which takes into account its income.
Are you under mortgage stress or not?
The Australian Housing and Urban Research Institute (AHURI) argues in its housing related stress report that the 30% mortgage-to-income ratio “may not be necessarily a good measure” for housing related financial stress.
“For example, a high-income household may choose to spend significantly more than 30% of household income to improve their housing aspirations but due to their high income they still have more than sufficient money after housing costs,” AHURI says.
Some researchers use the “30/40 rule” – if a household spends more than 30% of its gross income on a mortgage and falls within the bottom 40% of earners, they are considered genuinely financially vulnerable. This avoids labelling high-income borrowers, who may comfortably manage a 30% share, as “stressed”.
Even lower income households, according to AHURI, may not automatically be under mortgage stress if 30% of their pre-tax income is spent on housing costs as it does not take into account the other benefits of paying more into a home loan.
“A lower income household may choose to pay more than 30% of household income in order to speed up the full repayment of their mortgage debt, which can save the household significant amounts of money on interest repayments in the future, or to drawdown on their housing loan for non-housing purchases (e.g., a car).”
“By repaying their mortgages, households are both paying for housing and also actually saving their money in a tax-effective wealth asset that they may draw upon in the future.”
What can cause mortgage stress?
Rising interest rates
When the Reserve Bank increases the cash rate, variable‑rate borrowers see their repayments rise almost immediately. Even a small 0.25% rise can significantly impact mortgage costs.
Borrowers who took out large loans during the most recent low-rate periods (2020-2022) are particularly vulnerable.
High cost of living
Even if mortgage repayments haven't changed, rising everyday expenses can push a household’s budget into dangerous territory.
Key pressure points include groceries, electricity and gas, insurance (home, car, landlord, health), school fees, fuel and transport. When these costs rise faster than wages, households have less buffer to absorb mortgage changes.
Reduced income or job loss
Any drop in income, e.g., losing a job, hours being cut, or going from two incomes to one, can potentially cause major financial strain.
Falling rental income (for landlords)
For landlords, rental shortfalls (rents fall or stay flat), long vacancy periods, and rising property ownership costs (insurance, maintenance, etc.) can also lead to mortgage stress. When rental income falls, investors would have to cover the gap from their own income.
Poor financial buffers
Mortgage stress becomes likely when households lack financial buffers, such as emergency savings or backup income streams. Without buffers, any financial shock (a car breakdown or unexpected medical bills) can tip a borrower into stress.
Early warning signs of mortgage stress
Even if you’re managing repayments today, these red flags signal emerging stress:
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You’re dipping into savings to cover the mortgage
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You’re cutting back on essential spending
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You’re relying on credit cards or buy-now-pay-later
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Bills are being delayed to prioritise loan repayments
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Rental income no longer covers investment expenses
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You’re hesitant to check your bank balance or statements
How to deal with mortgage stress
Review your budget
Take a day to review your budget and see where money comes from and goes to. A detailed budget review can reveal unexpected savings or spending leaks that have crept in over time.
Focus on the following items:
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Subscriptions and digital services you no longer use
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Insurance, utilities, and phone plans that can be switched to lower‑cost options
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Discretionary spending (dining out, entertainment, takeaways)
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Annual or quarterly expenses that could be smoothed out using automated transfers
Property investors should also review:
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Whether rents reflect current market conditions
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Tax-deductible expenses they may be overlooking
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High-cost properties that may no longer justify their cash drain
Improve cash flow
Look for opportunities to lift income or reduce overheads. This could include adjusting rent (if the market allows), taking on additional income streams, or reviewing investment property deductions to ensure nothing is missed at tax time.
Shop for better rate
Never assume your current lender offers the best deal. Existing borrowers often pay a “loyalty tax” – higher rates than new customers.
Even a few basis points reduction can save you thousands per year, so request a pricing review or compare other lenders.
Talk to your lender
Lenders prefer early conversations over late‑stage arrears. If you can see trouble coming, even three to six months away, contact them as soon as possible. Banks are required to have financial hardship programs. They may be able to help you with various options such as restructuring your loan or working out a repayment plan to help you stay afloat.
Adjust your repayment structure
Consider switching to interest-only (IO) for temporary relief or extending the loan term. Note, however, that such options providing short-term cash flow benefits typically translate into increased interest costs. So weigh your options and talk to a financial advisor before making any decisions.
Seek financial assistance
If you're approaching crisis territory, don't go it alone. Australia has multiple support pathways designed to help borrowers regain stability before missing repayments.
Options include:
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Financial counselling services (e.g. National Debt Helpline) – free, confidential budget and debt advice
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Government relief programs (state‑specific) – temporary support for households under severe pressure
Final word
Mortgage stress isn’t a sign of failure, it’s a signal to act. While you can’t control interest rates or inflation, you can control the strategy you follow. With the right adjustments, you will be better equipped to deal with this financial strain, stabilise your cash flow, protect your portfolio, and navigate 2026 with confidence.
If rising repayments are putting pressure on your budget, it may be time to explore sharper home loan rates. At loans.com.au, we offer mortgage products with competitive rates whether you’re refinancing or looking to streamline your investment home loans. Talk to one of our lending specialists today.
Disclaimer: This article contains general information only and does not take into account your personal objectives, financial situation or needs. It should not be relied upon as financial advice. Before making any decisions about your mortgage or financial strategy, consider seeking independent, professional advice from a qualified financial adviser or mortgage specialist.
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