Mortgage holders near peak stress as RBA keeps rate hikes an option

Mortgage holders are nearing peak repayment stress as the RBA warns interest rate hikes are still firmly on the table.

In its latest Minutes of the Monetary Policy Board Meeting, the central bank said mortgage payments as a share of household disposable income were near their 2024 peak.

These pressures on mortgage holders are expected to increase – albeit slightly – as the full impact of previous rate hikes hit borrowers.

Even though households were putting a larger share of their income towards their mortgages, the RBA said they for the most part could absorb these costs.

“Members noted that many households with mortgages tended to have sizeable prepayment buffers they could potentially draw upon if needed to help smooth consumption,” the RBA minutes said.

“Extra mortgage payments had eased but were still around their long-run average (as a share of disposable income).”

The minutes also showed board members argued whether interest rates needed to rise or stay on hold.

According to the minutes, the RBA is worried about the US-Iran war causing oil prices to jump, an AI investment boom or demand not falling fast enough to crush inflation.

“One argument to raise the cash rate target by 25 basis points at this meeting was founded on an assessment of the risks to the inflation forecast,” the board said.

“Members noted that if the risks around the inflation forecast were judged to be significantly skewed to the upside, it may be appropriate to mitigate those risks somewhat by tightening monetary policy pre-emptively.

Despite the risks, the RBA ultimately held the cash rate at 4.35 per cent.

So far the RBA has lifted the cash rate at three of its five meetings in 2026 by a total of 75 basis points in its fight against inflation.

The RBA says these interest rate hikes will slowly bring inflation back towards target.

Australia’s trimmed mean inflation rate – which strips out the top and bottom 15 per cent – came in at 3.60 per cent for the 12 months to June. Headline inflation was 3.8 per cent.