Key implication: Australia’s mortgage stress is cooling on a percentage basis, pointing to stabilising household cash flows and a benign credit outlook into 2025. But volume matters: more households live on tighter budgets than in 2022. The firms that win this phase of the cycle will treat the relief as runway to upgrade risk analytics, precision pricing, and refinance operations—before competition compresses spreads.

What “easing stress” actually means for balance sheets

Roy Morgan’s latest read shows the proportion of borrowers classified as at risk has dropped to its lowest level since early 2023, marking a fourth consecutive monthly improvement. Yet the research also notes the count of Australians at risk has increased by more than half a million since rate hikes began, due to population growth and a larger mortgage pool. In other words, the rate of stress is falling, but the exposure base is bigger.

For CFOs, that distinction matters: expected loss (EL) models are sensitive to both probability of default (PD) and exposure at default (EAD). A modest improvement in PD, offset by a larger EAD, nets out to roughly flat EL. The Reserve Bank’s November 2024 Statement on Monetary Policy flagged a “benign credit outlook,” with non‑financial corporate spreads near their lows since early 2022—consistent with stabilising risk. But benign does not mean trivial: provisioning discipline and early‑intervention programs should remain intact.

Demand, deposits and default: where the relief shows up first

As variable rates plateau, the first operational impacts tend to be:

• Lower arrears tail risk: Major banks should see arrears normalise rather than spike. The RBA’s stability reviews have kept non‑performing housing loans near cycle lows through 2023–2024, aided by strong employment.
• Refinance churn remains elevated: Households will still shop for relief; broker channels hold the advantage in capturing switching volume. The Adviser’s reporting reflects ongoing competitive intensity in pricing for low‑risk refinancers.
• Consumer wallet re‑tilt: As serviceability stabilises, marginal spend shifts back to discretionary categories—benefiting large retailers and travel—but the lift will be uneven given rents and utilities remain sticky.

Capacity meets scarcity: supply constraints blunt the tailwind

Housing supply is the swing factor. Jobs and Skills Australia notes construction completions have fallen from early‑2023 peaks, and the average rate on new mortgages rose through March 2024, keeping entry affordability tight. The State of the Housing System 2025 highlights rental stress affecting over half of lower‑income renters in 2023 and approvals at multi‑decade lows in 2023–24—conditions that prevent a rapid easing in household budgets via lower rents or new stock.

For banks, fewer new dwellings means origination growth leans more on refinance and investor segments than first‑home buyers. For builders and developers, elevated input costs and capacity constraints cap volumes even if demand steadies. For policymakers, it underscores that credit relief alone won’t unlock supply; planning, labour availability and materials inflation remain binding constraints.

Rates and risk into 2025: a narrow but navigable runway

Market pricing implies a shallow easing cycle. With credit spreads already tight and arrears contained, system stability looks durable. Non‑bank housing credit contracted slightly in early 2023 after a period of expansion, indicating risk appetite has already recalibrated. The path forward:

• Base case: Flat‑to‑lower mortgage rates into late 2025, with PDs drifting down and loss‑given default (LGD) anchored by still‑firm house prices.
• Upside: If wage growth holds while inflation cools, households rebuild buffers, lifting retail and services volumes more decisively.
• Downside: A growth shock or employment wobble would quickly re‑tighten household cash flows; given the larger mortgage pool, small PD moves have amplified P&L effects.

Data and AI: converting macro relief into competitive advantage

The operational edge now lies in analytics. Australia’s public sector is setting governance guardrails—“This policy will ensure the Australian Government demonstrates leadership in embracing AI to benefit Australians,” said Lucy Poole in the August 2024 federal policy on responsible AI use. The Australian Taxation Office has published governance for general‑purpose AI systems, emphasising risk controls. Meanwhile, the 2025 review of Australia’s AI ecosystem notes a gap in commercialisation: adoption is ahead of home‑grown innovation.

For lenders and brokers, that gap is opportunity. Practical wins include:

• Early‑warning micro‑segmentation: Blend spending telemetry, savings buffers and repayment behaviour to flag pre‑delinquency cohorts. Trigger outbound offers to restructure terms before arrears emerge.
• Precision pricing engines: Use elasticities at the household segment level to calibrate retention discounts, protecting margin while cutting churn.
• Responsible automation: Apply explainable models for serviceability assessments and hardship triage, consistent with public‑sector‑style governance—model inventories, bias testing, human‑in‑the‑loop.

Execution should track three controls: model risk management, privacy by design, and outcome monitoring (arrears, churn, customer complaints). Given the ACCC’s ongoing focus on digital market power, transparent communications around algorithmic pricing will also be prudent.

Implementation reality: a lender’s 180‑day playbook

• Refi SWAT team: Stand up a cross‑functional squad (risk, pricing, broker distribution) with weekly win‑loss reviews; measure conversion cycle‑time and retention uplift as north‑star metrics.
• Customer buffer index: Build a rolling “buffer score” from transaction data to prioritise outreach to households with shrinking savings and rising essential outlays.
• Hardship modernisation: Deploy digital self‑service hardship pathways with dynamic options (payment holidays, term extensions) and real‑time credit impacts disclosed.
• Data partnerships: Where first‑party signals are thin, integrate alternative data sources under consent frameworks; ensure compliance with CDR principles and bank‑grade privacy standards.

For retailers and utilities, mirror the approach: target offers to segments whose mortgage outflows are stabilising, align payment plans where buffers are thin, and time campaigns to seasonal rate resets.

Industry transformation: brokers, banks and non‑banks in a new equilibrium

Brokers remain pivotal in the refinance cycle, advantaged by advisory proximity and digital capture of intent. Major banks benefit from balance‑sheet strength and cost of funds; challengers must differentiate on speed and service. Non‑banks, having trimmed risk appetite in 2023, can selectively re‑enter with transparent pricing and tighter verification to win niches (self‑employed, near‑prime) without compromising portfolio quality.

Across the system, the competitive frontier is shifting from headline rate to responsiveness: how quickly an institution can detect risk, make a fair offer, and close—at meaningful scale and with governance. That is a technology and operating‑model contest more than a funding contest.

Bottom line: use the respite

The easing of mortgage stress is not the end of the story; it’s a window. With arrears contained and spreads supportive, leadership teams should ring‑fence investment for risk analytics, refinance velocity, and responsible AI. The firms that institutionalise these capabilities before the next macro shock will convert a cyclical breather into durable market share.