Pakenham Hit 2.99% Arrears Against a 0.85% National Rate. In Two of the Worst Postcodes Values Fell 10.5% and 13% — and That Narrows the Refinance Exit

On 30 September the cash rate target moved to 4.60 per cent. That was the fourth increase of 2026, and it put the target a full percentage point above the 3.60 per cent it had held since August last year. Those are the Reserve Bank’s own figures, from its cash rate target series.

Then read the Reserve Bank’s October Financial Stability Review. The heading over its arrears discussion is “Arrears rates remain low despite a recent pick-up.” The share of housing loans more than three months behind has, in the Bank’s words, “increased a little over the year to date but remains around pre-pandemic levels.” Fewer than one per cent of borrowers are estimated to owe more than their property is worth.

Both of those readings are accurate. And the distance between them is the whole problem for a broker, because the Reserve Bank is describing a country and you are managing a list of postcodes.

1. The national average is doing a lot of hiding

Reporting by The Adviser on 9 October, drawing on arrears data from S&P Global Ratings, put the national share of loans at least a month overdue at 0.85 per cent. Against that baseline, three postcodes stood out.

Which is the point. If you are looking for the postcode signal, the Financial Stability Review is not where it lives. And the postcode signal is the one that maps onto a broker’s book, because broker books are built suburb by suburb, off referral partners who work a catchment.

2. This has been moving east for years

The concentration is not new, and that matters for how seriously to take it. Mortgage Professional Australia reported in July 2025, again on S&P data, that at March 2025 Craigieburn in Victoria had the country’s highest arrears rate at 3.10 per cent, and that five of the ten worst postcodes were Victorian — Craigieburn, Caroline Springs, Narre Warren, Pakenham and Melton South — with three in New South Wales: Blacktown, Liverpool and Campbelltown. In 2020, by the same reporting, seven of the top ten were in Western Australia and none were in Victoria.

“For around 18 months, outer Sydney and Melbourne postcodes had appeared more frequently in S&P’s top 10 list.”

Erin Kitson, director of structured finance, S&P Global Ratings, quoted by Mortgage Professional Australia, July 2025

Eighteen months on from that, Pakenham is still on the list. This is a settled pattern, not a one-quarter wobble.

3. The arrears map and the equity map are the same map

Here is the part that changes what you do on Monday. The same reporting gives value movements alongside the arrears rates, and in two of the three postcodes the fall is substantial — 10.5 per cent in Constitution Hill and 13 per cent in Baulkham Hills.

A client under repayment pressure has an obvious-looking way out: refinance to a sharper rate, or restructure. That option is priced in equity. When equity has gone backwards by a tenth or more, the option narrows exactly when the client needs it most.

“The more that your equity is reduced because of falling property prices, it’s harder to get a good deal on refinancing.”

Erin Kitson, director of structured finance, S&P Global Ratings, quoted by The Adviser, 9 October 2026

Kitson also pointed to younger borrowers in these areas carrying higher debt relative to income with less time to have built savings, and to buyers who purchased near the peak finding both arrears and refinancing harder going.

Terry Rawnsley, urban economist at KPMG, framed the household response in the same report: “I think there’s a whole range of different levers that people will be pulling.” He listed cutting spending, lifting income, switching to interest-only, and selling and downsizing. KPMG’s analysis, per that reporting, has Victorian mortgage holders putting the largest share of income into repayments of any state. S&P’s read is that low unemployment is what is keeping this from becoming a broader mortgage-market problem.

4. Your back-book campaign may be selling an exit that isn’t there

Most brokerages are running some version of a rate review on the existing book right now. Four increases in a year makes that the obvious play, and the CRM will happily produce a list.

The trouble is that the list is sorted by rate differential, not by current LVR. A client who bought in 2021 at 90 per cent in a suburb that has since given back 13 per cent is not a refinance opportunity. They may be a retention conversation, a hardship referral, or a file you simply cannot improve this year. Calling them with a rate pitch wastes your time and, worse, raises an expectation you cannot deliver.

This is where the compliance picture and the commercial picture point the same way. ASIC’s Regulatory Guide 273, which sets out what the regulator looks for on the best interests duty, deals with precisely this scenario:

“For consumers who are thinking about refinancing an existing loan, the expenses incurred when refinancing may exceed the cost savings of a new loan. In this situation, recommending a new loan may not be in the consumer’s best interests. The consumer may benefit from being made aware of any potentially minor cost savings associated with refinancing, with an explanation of when the cost savings would exceed the refinancing expenses.”

ASIC Regulatory Guide 273, paragraph RG 273.58

Read that against a file where the LVR has moved from 88 to 98. Discharge costs, a new application, possibly lenders’ mortgage insurance on the way back in — set against a saving that may not survive the arithmetic. RG 273.58 does not say never refinance such a client. It says the comparison has to be done, and that the client benefits from being shown when the saving would actually start.

RG 273 also addresses the constrained client directly. At RG 273.59 to RG 273.61 the guide acknowledges that access to products may be limited by a consumer’s circumstances, including credit risk, and that a credit provider’s policy, pricing and risk appetite — including its approach to lenders’ mortgage insurance and to repeated savings history — may put the cheapest products out of reach. Where that happens, the guide says you should explain why those products are not available and what the limitations of the available options are, and still consider the cost of what is available where the application is reasonably likely to be approved.

5. What sits with you, and what doesn’t

Two things are worth separating, because they get conflated every time arrears make the news.

A formal hardship request is machinery between the borrower and their credit provider. Your job is to recognise it, raise it without drama, and route it properly — not to run it. What that routing looks like in your business, including what you should and should not say to a client about a hardship application, is a question for your licensee or aggregator compliance team, and the obligations themselves sit in the credit legislation rather than in RG 273.

Your own obligation is the one RG 273 describes, and the guide is blunt about there being no shortcut. At RG 273.28 it notes that the National Credit Act does not set out circumstances in which a broker is taken to have complied, so there is “no ‘safe harbour'” and brokers need to take all steps necessary to act in the client’s best interests. At RG 273.18 it goes further: although it is the client’s decision whether to accept a recommendation, “it is the sole responsibility of the broker to ensure the recommendation is in the consumer’s best interests” — and in some situations that will include challenging the client’s perception of what their best interests are.

For a client in a falling-value postcode who is certain that refinancing is the answer, that last sentence is the whole job.

6. The postcode back-book review: six steps

This is a half-day exercise for a solo broker and a week for a team of five. It is worth doing before your next retention campaign rather than after it.

1. Segment the book by postcode, not by rate. Export settled loans with suburb, settlement date, original purchase price, original LVR and current balance. Sort by postcode volume — most books have three to six suburbs doing the heavy lifting.
2. Pull a current value estimate for your top postcodes. Whatever source your aggregator gives you is fine; you are looking for direction and rough magnitude, not a valuation.
3. Re-strike the LVR on every file in those postcodes. Current balance over current estimated value. Band the results: under 80, 80 to 90, over 90, and anything that looks like it may be approaching or past 100.
4. Re-sort the campaign list. Under-80 files are genuine refinance candidates. The 80-to-90 band needs the cost comparison done before you pick up the phone. Over 90 is a retention and structure conversation, not a refinance pitch.
5. Write the “why not” notes now. For files you are not going to recommend a refinance on, record the reason while the numbers are in front of you. That is the RG 273.21 record, and it takes two minutes per file today versus an afternoon of reconstruction later.
6. Agree the hardship escalation path with your licensee. One page: what you say, what you don’t, who you tell, how it is logged. Do it before a client raises it, not during the call.

7. A worked file

A client bought in Baulkham Hills in 2021. Loan $880,000 against a $1,000,000 purchase, so 88 per cent at the time, with lenders’ mortgage insurance paid. Five years of principal and interest at around 6 per cent leaves the balance near $820,000. On the reported 13 per cent fall, the security is now closer to $870,000.

That is an LVR of about 94 per cent. The sharp refinance rates the client has been reading about generally sit under 80. A move now likely means a fresh LMI premium, discharge and application costs, and a lender whose appetite at that band is narrower than it was. The honest answer may be that staying put and pressing the incumbent for a retention rate is the better outcome this year — and under RG 273 that is a legitimate recommendation, provided you have done the comparison and written down why.

Run that same client through a campaign list sorted on rate differential and you would have called them with a pitch you could not honour.

8. What to watch next

Three things would change this picture. Whether the next S&P arrears update shows the cluster broadening beyond the handful of outer-suburban postcodes or holding where it is. Whether unemployment stays low — S&P’s own view is that this is the load-bearing assumption. And whether the Reserve Bank’s next Financial Stability Review starts cutting household arrears geographically, which would tell you the regulator has decided the postcode concentration is systemically interesting rather than a securitisation-pool artefact.

“Arrears remain low” is a true statement about Australia and a useless one about your book. Arrears are concentrating in a small number of identifiable outer-suburban postcodes, and in several of them equity has fallen far enough that the refinance exit has narrowed for exactly the clients most likely to want it.

The fix is not complicated. Re-strike the LVR before you run the campaign, do the cost comparison RG 273.58 describes before you recommend a switch, say out loud why the cheap product is unavailable when it is, and write down the reasoning either way. That is better broking, and it is also the version of the file you would want in front of you if anyone ever asked.

Sources: Reserve Bank of Australia, cash rate target series (statistical table F1) and Financial Stability Review, October 2026, chapter 2 — Resilience of Australian Households and Businesses; ASIC Regulatory Guide 273, Mortgage brokers: Best interests duty, June 2020, paragraphs RG 273.18, RG 273.21, RG 273.28, RG 273.58 and RG 273.59–RG 273.61; postcode arrears rates, value movements, KPMG analysis and quotations from Erin Kitson and Terry Rawnsley as reported by The Adviser, “Borrower pressure builds as arrears lift”, 9 October 2026; March 2025 postcode and state comparisons and the 2020 comparison as reported by Mortgage Professional Australia, 9 July 2025. Postcode-level arrears and value figures have not been independently verified against the underlying S&P release and are attributed to the reporting cited.