Imagine you're shopping for a home loan and you spot a deal that seems too good to be true—a variable rate of 5.99% from a lender you've never heard of. You might think, "Great, I'll save thousands!" But behind that shiny offer could be a lender relying on private credit markets, which the Reserve Bank of Australia (RBA) now warns are facing rising default rates. What does this mean for your mortgage choice? Let's break it down.
The RBA's Warning: Private Credit and Mortgage Spillover
The RBA's latest Financial Stability Review, released on July 11, 2026, flags that private credit—loans made by non-bank lenders outside traditional banking regulation—is seeing default rates climb. According to the RBA, private credit defaults in Australia could reach 3.5% by late 2026, up from just 1.2% in 2024. This matters because private credit funds about 15% of Australian home loans, especially for borrowers with less-than-perfect credit or those seeking fast approvals. When these lenders tighten their belts, it can ripple through the entire mortgage market.
For you, this means that lenders offering ultra-low rates might be riskier than they appear. Private credit lenders often borrow from wholesale markets, and when defaults rise, they pass on higher costs to borrowers—or pull back from lending altogether. The RBA notes that a 1% rise in private credit defaults could increase mortgage rates by 0.25% to 0.5% at non-bank lenders, and even some major banks might adjust their risk pricing. So, comparing loans isn't just about rates—it's about understanding the lender's stability.
How Private Credit Defaults Affect Your Home Loan Options
When private credit defaults increase, it doesn't just hit non-bank lenders. It creates a domino effect. Here's what you need to watch for when comparing home loans:
1. Rate Hikes on Variable Loans
Non-bank lenders like Pepper Money, Liberty Financial, or Resimac might raise variable rates by 0.3% to 0.5% in response to higher default costs. For a $500,000 loan, that's an extra $1,500 to $2,500 per year. Meanwhile, big banks like Commonwealth or Westpac might hold steady, but they could tighten serviceability buffers—meaning you'd need a higher income to qualify.
2. Stricter Lending Standards
The RBA warns that lending standards are already tightening. In June 2026, the average minimum credit score for a non-bank loan rose to 650, up from 600 in 2025. For borrowers with scores below 600, options shrink. If you're self-employed or have irregular income, private credit lenders were once your go-to—now they might demand more proof of income or larger deposits.
3. Fixed Rate Offers May Disappear
Private credit lenders often offer competitive fixed rates to attract borrowers. But with defaults rising, they're less willing to lock in rates. As of July 2026, only 8% of non-bank lenders offer 3-year fixed rates below 6.5%, down from 22% a year ago. If you're eyeing a fixed rate, act fast—but also check the lender's track record.
Comparing Loans in a Risky Market: What to Look For
You don't need to panic, but you do need to be smarter about comparing loans. Here are three practical steps:
Step 1: Check the Lender's Funding Source
Not all lenders are equal. Major banks (CBA, NAB, ANZ, Westpac) rely on deposits, which are stable. Non-bank lenders depend on wholesale funding or securitisation—riskier in a default environment. When comparing, look at the lender's "funding mix" in their product disclosure statement. If it's heavy on private credit, consider a bank or a mutual like Newcastle Permanent.
Step 2: Compare Total Costs, Not Just Rates
A low rate might hide high fees or a short-term honeymoon. Use ozLoan's home loan comparison tools to see the "comparison rate"—which includes fees—and the "total cost over loan term." For example, a non-bank loan at 5.99% with $3,000 in upfront fees might cost more than a bank loan at 6.2% with no fees over 30 years.
Step 3: Stress Test Your Budget
The RBA suggests that borrowers should stress-test at 3% above the current rate. If you're looking at a variable loan at 6.5%, can you afford repayments at 9.5%? If not, consider a fixed rate or a split loan. Our guide on how to stress test your home loan walks you through the numbers.
Case Study: Two Borrowers, One Market
Let's compare two scenarios:
Borrower A: Sarah takes a variable loan at 6.2% from a major bank. She has a 20% deposit and a credit score of 720. The bank's funding is stable. Even if private credit defaults rise, her rate might only move 0.1% to 0.2% in 2027.
Borrower B: Tom takes a variable loan at 5.99% from a non-bank lender. He has a 10% deposit and a credit score of 620. The lender relies on private credit markets. If defaults hit 3.5%, Tom's rate could jump to 6.5% within six months, costing him an extra $150 per month.
Tom might have saved $30 per month initially, but after the rate hike, he's paying $120 more than Sarah. The lesson: compare lender stability as much as rates.
What the RBA's Data Tells Us
The RBA's July 2026 report provides key numbers:
- Private credit defaults: expected to rise from 1.2% (2024) to 3.5% (late 2026)
- Non-bank lending share: 15% of new home loans in Q1 2026
- Impact on mortgage rates: potential 0.25% to 0.5% increase at non-bank lenders
- Lending standards: credit score thresholds rising by 50 points on average
These aren't just statistics—they're signals for your next move. If you're refinancing or buying, now is the time to lock in a loan from a lender with strong deposit funding. Check out our comparison of major bank vs non-bank loans for more details.
FAQ
Q: Will the RBA raise official rates because of private credit defaults?
A: No, the RBA's cash rate decisions are based on inflation and employment, not private credit defaults. However, if defaults cause a credit crunch, the RBA might cut rates to stimulate lending. As of July 2026, the cash rate is 4.35%, and the RBA expects it to stay there through 2026.
Q: Should I avoid non-bank lenders altogether?
A: Not necessarily. Non-bank lenders can offer competitive rates and flexible terms for borrowers with unique situations (e.g., self-employed, low deposit). Just ensure you understand their funding source and stress-test your budget at a higher rate. Our guide to non-bank lenders can help you decide.
Q: How can I find out if my lender uses private credit?
A: Check your loan contract's "funding arrangements" section. If it mentions "securitisation," "wholesale funding," or "private credit markets," ask your broker or lender for details. You can also compare lenders on ozLoan to see their funding profiles.
Sources
- Reserve Bank of Australia, Financial Stability Review, July 2026. Available at: https://www.rba.gov.au/publications/fsr/2026/jul/
- Australian Prudential Regulation Authority (APRA), Private Credit Exposure Data, June 2026. Available at: https://www.apra.gov.au/private-credit-data
- Canstar, Home Loan Rate Trends, July 2026. Available at: https://www.canstar.com.au/home-loans/rate-trends/
- RateCity, Non-Bank Lending Insights, July 2026. Available at: https://www.ratecity.com.au/home-loans/non-bank