iscover 
A lack of rate relief is unlikely to ease competition in Australia’s mortgage market, as strong investor activity and first home buyers taking on higher levels of debt continue to drive demand, according to new analysis from S&P Global Ratings.
The rise of investors was a key theme in S&P Global Ratings’ RMBS Performance Watch: Australia for the September 2025 quarter, with the ratings agency noting that investor loans now made up around 40 per cent of new home lending commitments.
S&P Global Ratings said a pause in interest rate reductions is unlikely to affect investors and that surges in investor lending often align with periods of rising property prices.
The report also stated schemes that allow first home buyers to assume higher leverage with smaller deposits – such as the expanded 5% Deposit Scheme – could intensify property demand and contribute to rising household debt-to-income (DTI) ratios.
“An interest rate breather is unlikely to dampen enthusiasm for mortgage competition, with investor participation in home lending accelerating,” said S&P Global credit analyst Erin Kitson.
“Investors are less sensitive to interest rate movements, given their often-higher income levels and existing property footprint.
“This makes them a formidable competitor to prospective first-home owners, who increasingly need to take on more debt to participate in home ownership.”
Higher risk lending picking up
This analysis comes a week after the Australian Prudential Regulation Authority (APRA) released a report identifying an increase in higher-risk lending as one of the key vulnerabilities that could impact Australia’s financial system.
As reported on Broker Daily sister brand The Adviser, APRA maintained that housing lending standards are generally sound at present, though it cautioned that pockets of higher-risk lending are starting to emerge.
While high DTI loans remain a small share of the market, APRA noted signs of growth in this segment, particularly among investors and at some banks.
APRA cautioned that this surge, combined with more high loan-to-valuation ratio (LVR) loans under the government’s expanded 5% Deposit Scheme and intensifying competition among lenders, could push underwriting standards looser and increase risk appetite.
The regulator said borrowers and lenders remain resilient, but warned that resilience could be tested if these trends continue.
“For example, if lower interest rates (which tend to increase borrowers’ demand for loans) coincided with a deterioration in lending standards, this could lead to a rise in risky lending. Household debt may increase further, and some households may struggle to manage their repayments. If an economic shock occurred in that environment, this could result in higher default levels and credit losses for banks,” APRA said.
Arrears stable
Meanwhile, S&P Global Ratings said it expects arrears to stay around current levels, noting that further rate cuts aren’t likely in the near term.
Prime residential mortgage-backed security (RMBS) arrears eased slightly to 0.82 per cent in the third quarter of 2025, down from 0.88 per cent in the second quarter.
Non-conforming arrears also fell from 3.78 per cent to 3.62 per cent.
The ratings agency said strong competition among non-bank lenders for borrowers who don’t meet traditional bank criteria is driving refinancing activity, helping keep arrears stable.
Prime investors also fared better than owner-occupiers, with prime investor arrears at 0.62 per cent in the third quarter of 2025, compared with 1.01 per cent for owner-occupiers.
[Related: Arrears fall alongside interest rates]