The Reserve Bank has cautioned that Australia remains vulnerable to a sudden downturn in global artificial intelligence investment, even as domestic households demonstrate resilience against rising interest rates and falling property values.
In its latest financial stability review—a twice-yearly examination of systemic risks—the central bank identified mounting threats to global financial stability. The RBA estimates that fewer than one in 100 mortgage holders currently owe more than their property is worth, a finding that underscores household balance sheets' relative strength despite this year's widening price declines.
While some households continue to experience hardship, the estimated share of mortgagors in severe financial stress or in arrears has, so far, remained low, supported by the strong labour market and mortgagors' savings and equity buffers.
The RBA's assessment of negative equity—where a mortgage exceeds a home's market value—carries an important qualification. Recent purchasers who borrowed amounts close to their property's purchase price face elevated risk, particularly those who used the government's 5% home guarantee scheme. However, evidence indicates that payment arrears among these borrowers remain contained.
Modelling by the RBA suggests that even a severe 20% property price decline would push only around 5% of mortgages into negative equity. This outcome reflects the substantial capital gains most homeowners have accumulated over time.
Negative equity is insufficient to trigger default if borrowers remain able to service their loans, which remains the case for the vast majority of these households.
How vulnerable are Australian households to economic shocks?
Household purchasing power declined during the first half of 2026 after accounting for taxes, interest payments and inflation, with lower-income households bearing disproportionate pressure. Around 2% of variable-rate owner-occupier borrowers currently face a cash-flow shortfall, according to recent analysis, though most in that group maintain savings sufficient to cover the gap for at least six months.
Renters experience greater financial vulnerability than mortgage holders. According to RBA data, approximately 15% of renters face a cash-flow deficit compared with 4% of mortgage holders. In a severe hypothetical scenario combining unemployment of 6.3%, inflation of 7% and a cash rate of 5.6%, roughly 5% of mortgage borrowers would encounter elevated default risk.
What external threats does the RBA identify?
The central bank flagged a potential loss of confidence in the artificial intelligence investment boom as a primary trigger for destabilising asset price movements.
One possible trigger could be a shift in sentiment towards the AI investment boom, which is increasingly fuelled by expectations of sustained rapid earnings growth and a debt-financing cycle that is becoming more opaque and circular.
The RBA emphasised that
Australia is unlikely to be immunefrom the consequences of such a correction. The bank noted that AI-related data-centre financing has grown increasingly opaque, with off-balance-sheet obligations estimated at $1 trillion to $1.5 trillion, according to the RBA's October assessment.
High valuations across global corporate debt and equity markets create vulnerability to disorderly corrections. The RBA identified leveraged investors in bonds and AI-related equities as potential amplifiers of market volatility during periods of stress. Alongside the AI investment cycle, two active conflicts—in the Middle East and Ukraine—and intensifying strategic competition among major powers compound these risks.
What other financial stability concerns does the RBA highlight?
Beyond asset market risks, the RBA warned of escalating cyber attack threats, potentially enabled by artificial intelligence capabilities. The central bank also flagged the possibility of sudden sell-offs in global bond markets as a destabilising force.
Operational vulnerabilities have emerged as a growing concern, with disruptions to critical service providers representing a financial-stability risk, according to the RBA's October review.
These external factors are the most prominent threats to financial stability in Australia.
When will the RBA provide its next assessment?
The RBA publishes its Financial Stability Review twice yearly, following its March and September monetary policy meetings. The next review is scheduled for release after the Monetary Policy Board's March 2027 meeting, providing policymakers and the public with an updated evaluation of systemic risks and household resilience.
Key Facts:
- Fewer than 1% of mortgage borrowers are in negative equity despite property price falls in 2026
- A hypothetical 20% property price crash would push approximately 5% of mortgages into negative equity
- AI-related data-centre financing involves $1 trillion to $1.5 trillion in off-balance-sheet obligations
- Renters face cash-flow deficits at roughly four times the rate of mortgage holders
- The RBA identifies AI investment sentiment shifts and geopolitical tensions as primary external threats to Australian financial stability
