One might assume that the anticipation of rising interest rates would lead to a more cautious approach to spending and borrowing. However, Australians are currently defying that expectation.

Recent statistics reveal a notable increase in mortgage and credit card applications just before the Reserve Bank’s first interest rate hike in two years. This trend suggests that many borrowers are eager to secure financing before potential further cost increases.

According to Equifax’s Market Pulse report, demand for mortgage credit surged by 12.3% in the final three months of last year compared to the same quarter in 2024.

Credit card applications saw an even steeper climb, rising by over 15% during this period.

However, obtaining finance early does not necessarily protect borrowers from the impact of cash rate hikes, as these increases can still affect interest rates on credit cards and variable-rate mortgages, which remain the most popular options for new loans.

The biggest increase in five years

Equifax’s chief solution officer, Kevin James, noted that the recent spike in mortgage applications was unprecedented, reaching levels not seen in the past five years.

“It’s likely to have been supercharged by the government’s expanded five per cent First Home Buyer Deposit Scheme that became available in October 2025, and buyers acting on the impression that rates had peaked in late 2025, and therefore rushed to lock in deals before the year’s end.

“If this was their driver, they may have secured the last of the lower rates for a while, following the 25-basis point increase confirmed this February.”

Arrears steady — but debts are bigger

While the number of Australians falling behind on home loan repayments remained steady, the amount they owe is rising.

The dollar value of mortgage arrears increased 6.8 per cent compared with the same quarter in 2024.

The average amount owed on a loan at the late stage of delinquency jumped more than eight per cent to $403,000, correlating with higher house prices, potentially forcing buyers into larger loans with steep repayment penalties.

“This pattern of older Australians (aged 66 and over) carrying this type of debt into retirement is something to keep an eye on, particularly if the rate environment continues to increase,” James said.

In other credit segments, unsecured credit demand jumped 5.9 per cent, personal loan applications increased 8.9 per cent, while vehicle and auto loans fell 5.4 per cent compared with the 2024 quarter.

Gen X and gen Z driving the surge

Generation X borrowers (aged 46 to 55) drove the growth in mortgage demand.

Meanwhile, generation Z (18 to 30-year-olds) fuelled the spike in credit card applications with a 23.2 per cent surge — the highest growth rate for that cohort in three years.

The uptick was likely underpinned by aggressive incentive campaigns pushed by card providers in the recent quarter.

The younger borrowers subsequently helped drive a 28.8 per cent surge in credit card arrears.

But despite the surge in demand, lenders appear to be taking a more cautious approach.

Credit card limits for new customers have dropped by an average 8.3 per cent year-on-year, while personal loan limits are down 3.9 per cent.

“This proactive reduction appears to represent responsible lending in action, as banks prioritise stability over high-risk growth,” James said.

In terms of personal loans, slightly fewer people were falling into trouble, with delinquency rates easing 0.08 per cent, but those who did were falling deeper.

“While the number of people falling behind on personal loans has actually dropped, the amount of money they owe has significantly increased,” James said.

The Reserve Bank of Australia lifted interest rates in February for the first time in two years, setting the scene for lenders to bump up their offerings in line with the increase.

The bank is expected to raise rates again as early as May.

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