APRA Data: Australia's Low-Deposit Lending Hits Record High as Mortgage Arrears Rise

Key takeaway: APRA's latest quarterly data shows low-deposit home lending has reached a record share of new mortgage approvals, while mortgage arrears are quietly rising — a signal that financial stress is building beneath Australia's seemingly resilient banking system, with the RBA's September 2026 rate decision looming.

Australia's Banking System Grows, But Loan Stress Is Building

Australia's banking sector hit a milestone in the June quarter of 2026, with total authorised deposit-taking institution (ADI) assets surpassing $7 trillion. Yet beneath this headline of strength, APRA data tells a more nuanced story: low-deposit lending — loans with a loan-to-value ratio (LVR) above 90% — has climbed to a record share of new mortgage approvals, and mortgage arrears are on the rise.

For borrowers, brokers, and policymakers, these two trends moving in tandem are a yellow flag. When borrowers take on large mortgages with minimal deposits in a high-rate, high-inflation environment, their buffer against financial shocks shrinks. If a rate hike eventuates at the RBA's September 2026 meeting — as major banks and the IMF have signalled — some of these borrowers may find themselves under genuine pressure.

What "Low-Deposit" Lending Actually Means

A low-deposit home loan typically involves a borrower contributing less than 20% of the property's purchase price. Lenders — particularly the major banks — mitigate this risk through Lenders' Mortgage Insurance (LMI), which protects the lender (not the borrower) if default occurs.

The surge in low-deposit lending reflects two realities of Australia's 2026 market: first, home prices remain historically elevated despite recent softening, making it genuinely harder for buyers to accumulate a full 20% deposit; and second, government first home buyer schemes (such as the Home Guarantee Scheme) actively enable low-deposit purchases.

"ADI assets top $7 trillion as investor pipeline cools — Australia's banking system grew larger over the June quarter, but the home-loan market is showing fresh signs of stress."

— The Adviser, September 2026

Rising Arrears: An Early Warning Sign

Mortgage arrears — loans 30 or more days past due — are climbing from post-pandemic lows. While absolute arrears rates remain low by historical standards, the direction of travel matters. Rising arrears in an environment of record low-deposit lending is precisely the combination APRA monitors closely.

With Australia's inflation running at 3.5% annually (ABS, July 2026) and an unemployment rate of 4.5%, household cash flows are under sustained pressure. Borrowers who locked in low fixed rates in 2021–2022 are rolling off onto variable rates that are meaningfully higher — and this dynamic will continue into late 2026.

What This Means for Non-Bank Borrowers

For borrowers outside the major bank system — including self-employed Australians, small business owners, and those with non-standard income — rising mainstream arrears typically signals one of two things: stricter bank lending standards ahead, or an increased need to explore non-bank alternatives.

Non-bank lenders such as MPFG Capital operate under the National Consumer Credit Protection Act but with different risk frameworks than ADIs. This means they can assess borrowers' capacity to repay based on a broader set of income evidence — including BAS statements, bank statements, and accountant letters — rather than relying solely on payslips and PAYG income.

If you have been declined by a major bank due to deposit size, income type, or serviceability floors, exploring MPFG's product range may open doors that standard lending has closed.

FAQ

What does "low-deposit lending hitting a record" mean for Australian borrowers?

It means a growing number of buyers are purchasing with less than a 20% deposit, typically using LMI to cover the lender's risk. While this makes homeownership accessible, it also means more borrowers carry higher debt relative to their property's value. If property prices fall further, some borrowers may find themselves in negative equity — unable to refinance or sell without a loss.

Why are mortgage arrears rising in Australia if unemployment is only 4.5%?

Arrears can rise even in a relatively benign employment environment when interest rates remain elevated and inflation erodes disposable income. Many borrowers who locked in fixed rates in 2021–2022 are now refinancing onto much higher variable rates, putting sustained pressure on household budgets regardless of employment status.

Can a non-bank lender help if I'm finding it hard to qualify with the major banks?

Non-bank lenders assess income and repayment capacity differently from the major banks. For self-employed borrowers, recent migrants, or those with non-standard income, non-bank lenders such as MPFG Capital can often offer loan structures — including Alt Doc products — that better reflect your actual financial position. It's worth speaking to a licensed credit adviser about your specific situation.

This article is general information only and does not constitute financial or credit advice. All applications are subject to credit assessment by MPFG Capital (ACL 553698).