Mortgage stress in Victoria: a data-driven perspective

Mortgage distress is pronounced in Victoria 

Following the Reserve Bank of Australia’s interest rate hikes in 2022 and 2023, mortgage arrears across the country began to rise, with Victoria emerging as a key area of concern. While New South Wales and Queensland have shown resilience, Victoria’s arrears have shown a marked upward trend, highlighting regional disparities in household financial stress and borrower adaptability.

Australian mortgage arrears began to rise approximately six months following the increase in interest rates. Prior to 2023, Victoria, along with New South Wales (NSW), had one of the lowest mortgage arrears rates in the country. However, since 2023, Victoria’s arrears have risen more rapidly than those in other states. While NSW arrears have almost returned to pre-rate hike levels, Victoria’s arrears have surged by approximately 50%.  

This suggests that additional economic and market forces, beyond interest rates, are impacting Victorian mortgage holders. In the following analysis, we examine loan vintages for the past five years and explore several key factors contributing to Victoria’s elevated arrears position. 

Arrears surge across 2022-2024 vintages

A closer look at Victoria’s loan vintages (originations) reveals a clear shift in maturity dynamics. Since Q1 2022, nearly all quarterly vintages have been maturing at twice the rate observed than those prior to 2022. The persistently elevated arrears in the 2024 and 2025 vintages suggest that this accelerated trend is continuing, reinforcing concerns about sustained credit stress in the state.

The divergence in arrears rates has largely been driven by the performance of recent loan vintages. Since Q1 2022, Victoria’s loan vintages have matured at a faster rate and recorded higher arrears each year compared to other states. This trend is illustrated in the following graphs, which compare vintages by state for Q1 2021 and Q1 2023. 

In 2021 arrears rates were low nationwide and Victoria was in line with other states. Compared to 2023, however, while all states experienced an increase in late payments, Victoria’s arrears accelerated at a faster pace and reached higher levels.

Stress is broad-based across Victoria 

The rise in mortgage arrears appears to be broad-based in Victoria. Both wider Melbourne and inner regional areas (areas such as Ballarat and Bendigo) have consistently recorded higher arrears rates in recent loan vintages compared to national averages since the start of 2022.

Key drivers behind Victoria’s elevated arrears

Two primary reasons that cause a borrower to fall into arrears are an unexpected loss of income or pressure on their budgets due to increased costs. Typically, borrowers that are more highly leveraged (with a high loan-to-value ratio) are at a higher risk of falling into arrears, as they are more prone to economic shocks such as job loss, high inflation, or large unexpected expenses. 

There are several macroeconomic factors observed in Victoria that may help to explain the disparity in mortgage arrears for Victorians compared to other states. 

Higher unemployment rates 

The impact of rising interest rates coincided with ongoing challenges in Victoria’s labour market recovery following the COVID-19 period. Since the rate hikes began in 2022, Victoria has consistently recorded one of the highest unemployment rates in the country.  

Compared to NSW, Victoria’s unemployment rate has averaged 0.5 percentage points higher, highlighting its slower rebound and greater economic strain. Additionally, the number of 
JobSeeker recipients in Victoria increased by 13% year-on-year on average each month in 
2025, compared to the national average of 8.5%.  

As job losses, reduced hours and consequently reduced income persists, more households fall behind on payments; a key driver of higher arrears compared to states with stronger labour markets.

Declining house prices

Declining housing prices have also played a role in rising mortgage arrears. Since emerging from the COVID-19 period, Melbourne property values experienced a modest decline in many suburbs, in contrast to the growth seen in Sydney and Brisbane in particularly.  

This capital depreciation during a period of rising interest rates meant mortgage holders faced a dual challenge: higher repayment obligations and shrinking property equity. Falling house values reduce the ability to refinance or sell, and in severe cases can lead to negative equity, where the loan exceeds the property’s worth. Without this equity buffer, borrowers under financial stress in Victoria have fewer options to avoid arrears, making defaults more likely compared the other states where rising property prices provided a safety net.

Tougher business conditions

Victoria is home to approximately 650,000 small businesses and with many of these businesses, the owner will also carry a mortgage. For these business owners, staying current on mortgage commitments relies heavily on the stability of their business cash flow. When revenue streams weaken or become unpredictable, which can be driven by macroeconomic conditions, the ability to meet these obligations deteriorates. Businesses that over-leverage by carrying both a business debt and a personal mortgage further amplify this vulnerability.  

Compared to the rest of Australia, Victoria has had a more subdued economic environment marked by slower growth, weaker consumer spending, and higher operating costs. Higher payroll costs (due to a lower tax-free threshold) and land taxes, stringent regulatory requirements, and rising compliance costs compressed margins for many businesses. It is likely that these pressures will have translated into tighter cash flows, making timely mortgage repayments more difficult for owners.  

Each year since 2022 Victoria has had the highest exit rate of businesses nationally, signalling elevated distress in the state. When businesses shut down, owners often lose their primary income source, directly impacting their ability to service mortgages. 

Victoria’s elevated mortgage stress reflects a complex mix of economic headwinds, business vulnerability, and household debt dynamics. Persistent cash flow pressures on small business owners, elevated unemployment, and a period of declining property prices amplified arrears risk across the state.

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