Australia rate cuts ease pressure on mortgage arrears: Fitch

One more rate cut in 2025 may lower arrears further, the ratings agency said.

The Australian central bank’s interest rate cuts and disinflation have provided some relief to borrowers, according to Fitch Ratings.

Residential mortgage-backed securities (RMBS) conforming arrears dropped 15 basis points (bp) to 1.21% in Q2 2025 from the 10-year high of 1.36% in Q1 2025. Non-conforming arrears fell more sharply, by 73bp to 4.59%.

Arrears refer to payments that remain unpaid past their due date, affecting loans, mortgages, and utilities, as defined by Investopedia.

The ratings agency forecasts one further rate cut in 2025, which in turn is expected to lower arrears further by improving the serviceability of the predominantly floating-rate loans in the Australian market.

The Reserve Bank of Australia (RBA) had earlier reduced the cash rate by 25bp in August 2025, the third cut of the year.

Meanwhile, home prices rose by 1.5% quarter-on-quarter in Q2, extending the 1.1% rise in Q1. Fitch Ratings expects home prices to rise further in 2025 amidst limited supply and falling rates, amongst other factors.

“Home prices could fall if interest rates or unemployment rise above our expectations. However, this is unlikely to result in losses for the majority of mortgages due to the strong price performance in recent years,” Fitch said.