Mortgage Stress Alert: 1.2 Million Australian Households Face Heightened Risk Amid Looming Rate Hike

A potential interest rate increase by the Reserve Bank of Australia next month could push more than 1.2 million mortgage holders into financial strain, according to new modeling from Roy Morgan Research, as persistent inflation prompts major banks to forecast a February hike.

The latest Roy Morgan Single Source data, covering October to December 2025, shows that 24.5% of owner-occupied mortgage holders — equivalent to about 1,187,000 people — are currently "At Risk" of mortgage stress. If the RBA raises the cash rate by 0.25 percentage points to 3.85% at its February meeting, that figure would climb to 25.3%, or 1,228,000 households, an increase of 41,000. A further hike in March to 4.1% could see the number rise to 27.2%, affecting 1,322,000 mortgage holders.

The warning comes as major Australian banks, including Commonwealth Bank and National Australia Bank, now describe a February rate increase as a "done deal" or highly likely, driven by inflation proving more stubborn than anticipated. Recent consumer price index data showed headline inflation climbing, with trimmed mean measures — the RBA's preferred gauge of underlying pressures — remaining elevated above the central bank's 2-3% target band.

Roy Morgan defines mortgage holders as "At Risk" when their mortgage repayments exceed a certain proportion of household income, with "Extremely At Risk" applying to those where even interest-only payments strain budgets significantly. The current 24.5% "At Risk" level marks the lowest proportion since January 2023, a relief after years of rate hikes that peaked stress levels earlier in the cycle. The number of "Extremely At Risk" holders stands at 830,000, or 17.1%, just above the long-term average of 16.3% over two decades.

"Despite the recent easing, rising inflation poses a clear risk of interest rates heading up in 2026," said Michele Bullock, RBA Governor, in recent commentary hinting at the need for tighter policy if price pressures persist. Economists at Commonwealth Bank, NAB, ANZ and Westpac have shifted forecasts, with most now expecting at least one 0.25% hike in February, potentially the first since late 2023. Market pricing via ASX futures reflects growing odds of tightening early in the year.

The modeling assumes other factors like employment and household income remain stable, though Roy Morgan notes unemployment and under-employment remain elevated, with more than one-in-five Australian workers affected — over 3.4 million people in recent estimates. This backdrop amplifies vulnerability for mortgage holders, many of whom locked in lower rates during the pandemic era only to face variable rate adjustments as the RBA's cash rate climbed to combat post-COVID inflation.

Homeowners in major cities like Sydney and Melbourne, where property prices remain high relative to incomes, are particularly exposed. Fixed-rate mortgages expiring in the coming months could compound the impact, forcing borrowers onto higher variable rates. Financial counselors report increased inquiries from households struggling with rising living costs, including energy bills and groceries, which have contributed to the inflation rebound.

Experts say the RBA faces a delicate balancing act: curbing inflation without tipping the economy into recession or exacerbating household stress. A single "one and done" hike in February could suffice if it guides inflation back toward target, some economists suggest, while others warn of multiple moves if spending or wage growth accelerates.

For many families, even a modest increase translates to hundreds of dollars more in monthly repayments on average loans. A 0.25% rise on a $600,000 mortgage could add roughly $100 monthly, straining budgets already stretched by higher costs elsewhere.
The data underscores broader economic tensions. While the economy grew solidly in late 2025, consumer confidence has been mixed, and discretionary spending cautious. The RBA's next decision is due early February, with markets and analysts watching December quarter inflation figures closely for confirmation of the trajectory.

Roy Morgan's ongoing Single Source survey, drawing from thousands of interviews annually, has tracked mortgage stress trends for years, providing one of the most consistent private-sector indicators. Past cycles show stress peaking during aggressive tightening periods, such as the 2022-2023 hikes, before easing with rate stability or cuts.

As Australians brace for possible higher borrowing costs, financial advisers urge proactive steps: reviewing budgets, exploring fixed-rate options if available, or seeking hardship assistance from lenders. Government support measures, like energy rebates, have helped in the past but are phasing out in some states, adding to pressures.

The outlook remains uncertain, but the Roy Morgan figures serve as a stark reminder of how sensitive household finances are to even small shifts in monetary policy. With inflation's persistence testing the RBA's patience, the coming months could determine whether Australia's post-rate-cut relief proves short-lived.