The recent rise in short and long-term market rates has had ongoing implications for households and businesses.
The "experts" have very divergent views on the destination of interest rates to their peak, with many saying the cash rate could see another two increases before the end of 2026 as inflation persists. Read more commentary on this in our Market Watch series.
We have now had a while to adjust to the new interest rate environment. One obvious outcome is that most people cannot borrow as much as they once could using the same level of income.
What is 'At Risk' Mortgage Stress?
In terms of the overall market, one litmus test is loan arrears. Both the RBA and ABS are reporting low levels of loan arrears to March 2026 compared to previous statistics. 'At Risk'* commentary and modelling are used to indicate the likelihood of future loan arrears.
'At Risk' figures indicate mortgage holders who are paying more than 25% to 45% (depending on income and spending) of their after-tax household income into their home loan. Each rate increase causes an adjustment in household discretionary spending to keep up with an increase in loan repayments passed on by the banks.
In January 2026, Roy Morgan research indicated that 23.9% of mortgage holders were 'At Risk' of experiencing mortgage stress. However, this was also the lowest percentage since January 2023, which showed that overall, households were holding ground due to the RBA's previous easing in 2025.
Additional Ray Morgan reporting released in April 2026 shows 26.8% of mortgage holders were ‘At Risk’ of ‘mortgage stress’ in the three months to March 2026, up 1.9% points from February 2026, but back to the same figures as they were in May 2025. Following the recent May increase of 0.25%, the expected outcome is an incremental increase to 30.4%.
Employment figures and geopolitical events also contribute to 'At Risk' modelling due to their impact on inflation measures and overall consumer sentiment.
Going forward, Australian households can take action by primarily focusing on the following:
Continuing to sensitise and adjust all borrowing at an upward buffer of 1% to assess the cashflow impact and explore the necessary discretionary spending adjustments ahead of more potential rate increases.
Where possible, consider restructuring or refinancing borrowings to lenders or products that offer lower interest rates. Banks release new products each year, and there could be real advantages to exploring your options. For example, many essential services, medical and education professionals, are eligible for packages tailored to their income profiles.
For loans with higher interest rates (such as credit card & store cards), consider the opportunity cost and advantage of retiring this debt, as opposed to the return of using money for other purposes or investments. Taking a dual approach can often provide overall benefit in the long term.
Absorbing higher-rate debt into a home loan refinance is an option to explore, and the potential long-term savings can then flow into other investments.
Talk to your broker or lender about repricing your existing home loan. Negotiating a better rate can be a lot easier than refinancing for lenders. Shop around and do your homework first, then ask your broker to take a look, as they will be able to provide further guidance.
Business owners are best served by focusing on these remediation steps:
Continuing to sensitise and adjust all borrowings at an upward buffer of 1% to assess the cashflow impact and make adjustments to expenses ahead of more potential rate increases.
Consider reviewing your overall banking position. Can you make savings by consolidating your transaction or trade banking costs, for example?
Look at the overall cost of your banking, not just the headline interest rate. Are there unused facilities that are incurring line fees, for example? MCP's Debt Advisory expertise can assist here.