Australia's loan markets remain on alert, following National Australia Bank's (NAB) update earlier this month that bad debts across the nation could soon rise thanks to mounting global instability and an already fragile domestic economy.
The major issued a warning, saying it expects credit impairment charges of about $706 million for the first half of 2026, roughly $300 million higher than previously forecast. The revised outlook follows a similar move from Westpac, which is also anticipating an increase in loan losses in the first half.
While lenders have yet to report a significant spike in arrears, marketing players are starting to chatter about what's to come, with many bracing for a more challenging environment in the months ahead. The combination of geopolitical pressures, elevated living costs and rising high interest rates is creating a complex risk landscape that banks, brokers and borrowers alike are now being forced to navigate.
Meanwhile, while many brokers say they have yet to see a rise in arrears or bad credit, several are pointing to a clear shift in consumer behaviour.
"Very clearly," Paul Katranis, founder, director and mortgage broker at Adelaide-based SA Wealth, told Australian Broker. "Both households and businesses are becoming more cautious. We are seeing delayed spending, reduced borrowing appetite and a preference to wait for greater clarity across several areas.
"Overall, the environment is one of pressure and caution, rather than a crisis at this point in time," he added.
In a two-part series, Australian Broker asked lenders and brokers across the country for their thoughts and to find out what they're seeing on the ground.
Founder, director and broker at Adelaide-based SA Wealth
"At this stage, nothing material [n loan defaults] is coming through in our business. There has been underlying pressure on both households and businesses for some time, so this may simply represent a continuation, or potentially the final layer of pressure that could tip certain segments. However, we are not seeing a clear or immediate spike just yet. Construction cost increases and the use of rise-and-fall clauses have been notable, with many businesses trying to remain flexible and pass on cost pressures where possible.
There hasn't been any significant increase in arrears or repayment stress in the last three to six months. That said, there are pockets of stress. Retail sectors such as cafés, restaurants and general retail are feeling it. On the household side, lower-income groups who are more exposed to week-to-week cash flow pressures are being impacted the most. Importantly, while stress is evident, it has not yet translated into widespread defaults. We are seeing softer consumer demand and a shift in sentiment. Many clients appear to be preparing for potential escalation, but are not fully convinced it will occur. There are clear pressures across both households and businesses, though at this stage they are being managed rather than causing widespread distress.
It's a combination of both global instability and domestic factors — such as interest rates, inflation and general cost-of-living pressures — that is causing this shift. But global instability, particularly via oil and fuel prices, is adding further strain. Discretionary spending has clearly slowed, with many delaying non-essential decisions such as renovations or investments."
Director and finance broker at Australian Financial and Mortgage Solutions
"I don't agree with NAB. Borrowers are stressed in some pockets, no question. But widespread repayment failure isn’t the broader story right now.
Mortgage arrears remain low and offset balances are high. That matters. Despite rising interest rates over recent years, Australian mortgage arrears have stayed remarkably contained. According to the latest Australian Prudential Regulation Authority (APRA) data, the share of housing loans that are 30 to 89 days past due sits well under 1%, and non-performing loans remain around historical norms; hardly the kind of numbers you’d expect if borrowers were truly struggling.
And it’s not just arrears that tell a story. Borrowers are holding significant offsets and savings buffers, which provide a huge cushion when repayments rise or seasonal expenses bite. In the June 2025 quarter, offset account balances accounted for over 11% of credit limits outstanding, up from around 10% a year earlier.
In plain terms, low arrears and high offsets equals resilience. Households aren’t teetering on the edge. Yes, one to three rate increases do affect cash flow. And yes, repayments are higher than they were in 2021. But the idea that an arrears spiral is imminent doesn’t match the data. History has shown that rises from low arrears levels don’t automatically translate into defaults and fire sales, especially when many borrowers have savings cushions and strong employment conditions underpinning their ability to pay."
"From the clients we have in the Middle East, we have had no clients contacting us about having lost their jobs, or worried about losing their jobs, and we have spoken to a lot over the last few weeks. We have had a few clients who were looking to buy, who have now paused. But they are starting to feel confident again to get back in the market.
I think, if this war turns into a full-blown bombing, there will be wider issues across the world, with less oil and the flow-on effect, such as food shortages. Australia will be one of the worst affected, as we are so far away from anywhere."
Franchise owner and mortgage broker at Mortgage Choice, Morphett Vale in South Australia
"I am not noticing any bad credit directly yet. But I feel it is something we'll be seeing and hearing a lot more about in the not-too-distant future. We are monitoring our arrears regularly, and having direct conversations with our clients about ways to prevent it from happening. That includes debt consolidation, loan term re-adjustment, even removal of available redraw so repayments can be recalculated on lower limits.
We are seeing concern from new and existing clients. There are conversations around prevention and tightening of lender policies around borrowing capacities. Conversations on refinancing are happening. But we are finding that those who perhaps reached their max originally now can't afford to borrow what they already owe. Clients are now genuinely considering lower value properties, or downsizing to get some relief. Also, there's concern around lower property values. We are certainly seeing a change in behaviour and also confidence, as well. People are much more aware of their spending and where it goes.
I believe [the current stress] has much more to do with domestic pressures. But the current world instability heightens concerns and opens the door for external factors to have a greater impact on domestic issues. Fuel is an obvious factor in this."
Sydney-based director and head broker at Derwent Finance
"At this stage, I am not noticing a significant spike in arrears or missed repayments in the past three to six months. What has changed, however, is behaviour. Clients are becoming more proactive and cautious with how they manage their finances. There is [still] strong refinancing and reprice activity. But the intent has shifted. It is less about chasing the sharpest rate and more about improving cash flow, simplifying structures and building buffers.
I am also seeing more customers reaching out to request rate reviews with their existing lenders. That conversation has increased noticeably, with clients wanting to ensure they are on competitive terms before considering any bigger changes. I am also noticing more enquiries around whether this is the right time to buy. Many customers are taking a more measured approach, getting their budgets in place and preparing themselves, while waiting for the right timing to enter the market rather than rushing into decisions.
Based on my conversations with customers, domestic factors appear to be having a much greater impact than global instability. Interest rates, inflation and the rising cost of living are being felt directly in everyday expenses and repayments. While global events, including conflicts in the Middle East, do influence sentiment and confidence, they are not coming through as the primary driver of financial stress at an individual level. Clients are adjusting accordingly. Many are reviewing their loans earlier, being more mindful of spending, using offset accounts more actively and exploring options like debt consolidation where it suits their situation."
Founder and managing director of Melbourne-based Empower Wealth Advisory
"We have very low arrears or defaults because we do spend a lot of time with our clients on household budgeting and money management. But while I'm not seeing [more bad credit] in our business, I do very much anticipate a lot of investor borrowers, who have been sold into the idea of setting up trust lending for buying multiple properties, will be concerned. And I suspect this is why lenders are anticipating a spike in bad credit, since a lot of these borrowers are highly geared. And with more rate rises [potentially] coming and major tax reforms potentially landing, they could see the value of their properties fall, which would cause the negative equity scenario the banks are starting to plan for. Most customers won't have a choice but to pull back on, firstly, with their discretionary spending, and then if things get serious, with their essential spending."
Founder, director and broker at Perth-based Beez Neez Finance
"I haven't had any enquiries from existing clients, saying they are struggling to pay their mortgage. I know of one client who is a truck driver and was advised that he hasn’t been paid from his supplier for two months of work he provided. I am not sure at this stage if it will affect his ability to pay his mortgage."
