Recent actions by the Australian central bank—specifically, interest rate cuts and a reduction in inflation (disinflation)—have eased financial pressure on Australian borrowers, according to Fitch Ratings.

This relief is evident in the sharp decrease in mortgage arrears (late payments) during the second quarter of 2025:

• Residential Mortgage-Backed Securities (RMBS) conforming arrears dropped 15 basis points (bp) to in Q2, down from a ten-year peak of in Q1.

• Non-conforming arrears saw an even larger decline, falling 73 bp to .

Fitch anticipates further positive movement, forecasting one more rate cut in 2025. This is expected to lower arrears even more by making it easier for borrowers to afford payments on Australia’s prevalent floating-rate loans.

The ratings agency noted that the Reserve Bank of Australia (RBA) had already reduced the cash rate by 25 bp in August 2025, marking the third cut that year.

Meanwhile, the Australian housing market saw continued growth, with home prices rising in Q2, following a rise in Q1. Fitch projects that home prices will continue to increase in 2025 due to factors like falling interest rates and limited housing supply.

Fitch did add a caution: while home prices could fall if interest rates or unemployment unexpectedly rise, this is unlikely to cause losses on most mortgages given the significant price appreciation in recent years.