Australian Credit Demand Surges as RBA Tightens Policy

SYDNEY – Australians increased their borrowing in the final quarter of 2025, anticipating a shift in the Reserve Bank of Australia’s (RBA) monetary policy. The surge in credit demand occurred as the RBA signaled a more hawkish stance, ultimately leading to a 25 basis point interest rate increase in February 2026.

Mortgage and Credit Card Applications Rise

According to a report by Equifax, mortgage applications grew by 12.3% year-over-year in the fourth quarter of 2025. Credit card applications also saw a significant increase, climbing by over 15% during the same period [1]. This marks the highest growth in mortgage demand observed in the last five years [1].

Factors Driving Demand

Several factors contributed to the increased borrowing. The expansion of the First Home Buyer Deposit Scheme to 5%, effective October 2025, played a role. Many prospective buyers anticipated that interest rates had peaked by the end of the year, prompting them to lock in favorable terms before the February rate hike [1].

Credit Arrears and Demographic Concerns

While mortgage delinquency rates remained stable, the overall value of arrears increased by 6.8% year-on-year. The average loan amount in advanced arrears rose by over 8% to $403,000, reflecting rising house prices and larger loan sizes [1]. Equifax highlighted a growing concern regarding the increasing number of individuals aged 66 and over entering retirement with significant outstanding mortgage debt, making them particularly vulnerable in a rising interest rate environment [1].

Trends Across Credit Segments

Beyond mortgages, other credit segments also showed expansion. Non-secured credit increased by 5.9%, and personal loan applications rose by 8.9%. Vehicle financing, still, experienced a decline of 5.4% [1]. The growth in mortgages was primarily driven by Generation X (aged 46-55), while the increase in credit card applications was attributable to Generation Z (aged 18-30), with a 23.2% jump in requests [1]. This dynamic contributed to a 28.8% increase in backlogs on credit cards.

Lender Response and Caution

In response to the increased demand, lenders reduced the average limits of novel credit cards by 8.3% and personal loans by 3.9% on an annual basis. Equifax interpreted this as a signal of caution [1]. The number of personal loan defaults decreased slightly, but the amount owed by those in difficulty increased.

Looking Ahead

With the RBA having already raised rates in February 2026 and further increases anticipated, pressure on household budgets is expected to intensify in the coming months. The RBA’s annual report for 2025 will provide further insights into the central bank’s operations and performance [2]. Australians demonstrated strong financial resilience in 2025, maintaining an average credit score of 864, a three-point increase from 2024 [3].