Default rates—the percentage of loans or credit accounts that fall into default—have become a critical talking point in Australia’s financial landscape. With shifting economic conditions, changing interest rates, and new regulatory measures on the horizon for 2025, understanding default rates is essential for both borrowers and lenders.

What Is a Default Rate and Why Does It Matter?

A default rate is the proportion of borrowers who fail to make required payments on their debts. In Australia, a default typically occurs when a payment is overdue by 60 days or more, though the threshold can vary by product type (for example, credit cards versus mortgages). Financial institutions use default rates to assess risk, price loans, and determine lending policies.

For borrowers: High default rates can lead to tighter lending standards, higher interest rates, and reduced access to credit.
For lenders: Elevated default rates may erode profits, increase provisioning requirements, and trigger regulatory scrutiny.

In 2025, the Australian Prudential Regulation Authority (APRA) continues to closely monitor default rates, especially as cost-of-living pressures and variable interest rates create uncertainty for many households.

2025 Trends: What’s Driving Default Rates?

Australia’s default rates have been influenced by several key factors in 2025:

Interest Rate Movements: The Reserve Bank of Australia (RBA) held the cash rate steady at 4.35% in early 2025, but many borrowers are still rolling off ultra-low fixed rates onto higher variable rates. This “mortgage cliff” has led to a modest uptick in arrears for both home loans and personal credit.
Cost-of-Living Pressures: Inflation, while easing compared to its 2022 peak, remains above the RBA’s 2–3% target. Essentials like groceries, utilities, and insurance premiums have stretched household budgets, pushing some borrowers closer to default.
Regulatory Response: APRA’s updated lending guidance in late 2024 requires banks to stress-test new borrowers at higher interest rates and to more rigorously monitor early signs of financial distress.

According to the latest data from the Australian Bureau of Statistics (ABS) and APRA, the national home loan default rate ticked up to 1.3% in Q1 2025, up from 1.0% a year prior. Personal loan and credit card defaults have seen a similar, though less pronounced, rise.

Implications for Borrowers and Lenders

Banks and Lenders: Lenders are responding to higher default rates by tightening credit criteria—especially for higher-risk segments like low-deposit homebuyers and unsecured personal loans. Some non-bank lenders are adjusting pricing or withdrawing certain products entirely.

Borrowers: For households with tight budgets or variable incomes, the risk of default is higher in 2025. Missed payments can result in:

Damage to credit scores, making future borrowing more difficult and expensive
Higher interest rates on new or refinanced loans
Potential legal action or forced asset sales (in severe cases)

Example: Sarah, a Sydney-based teacher, fixed her mortgage at 2.2% in 2021. In March 2025, her loan reverts to a variable rate of 5.9%, raising her monthly repayments by $700. Despite budgeting carefully, she misses two payments while adjusting to the new cost, triggering a default notice from her lender. This scenario, playing out across thousands of Australian households, is reflected in rising default statistics.

How to Navigate the Changing Default Landscape

Whether you’re a borrower hoping to avoid default or a lender managing risk, being proactive is key in 2025. Here are practical steps:

Borrowers: Regularly review your budget, communicate with your lender early if you’re struggling, and seek hardship assistance if necessary. Consider refinancing or consolidating debts while you still have strong credit.
Lenders: Invest in real-time monitoring tools, offer hardship programs, and adjust underwriting standards to reflect current economic realities.

Government agencies like the National Debt Helpline and ASIC’s Moneysmart continue to offer updated resources and tools for Australians facing financial stress in 2025.