Australian households are facing a growing mortgage repayment burden, with the Reserve Bank of Australia (RBA) poised to raise interest rates further in November. Property group REA warns that another rate hike could push mortgage repayments to nearly 37.4% of a typical household’s income, approaching the 1989 record of 37.5%. This calculation assumes a 20% deposit and a 30-year loan term. While the national average remains below the historic peak, states like Queensland, South Australia, and Western Australia have already exceeded their previous highs.
REA economist Luc Redman notes that falling property prices have not sufficiently offset the loss of borrowing power, particularly affecting lower-income households. He suggests that accumulated wealth through property, savings, and superannuation may be mitigating the usual slowdown in consumption linked to declining home values, potentially worsening the RBA’s inflation challenge.
A Deloitte Access Economics estimate indicates that an average owner-occupier loan could incur an additional $9,000 in annual interest if the cash rate reaches 4.85%. Federal Treasurer Jim Chalmers attributes the long-standing disparity between property prices and household incomes as a key factor, citing a 540% increase in house prices since 1989. Chalmers argues that the government’s budget measures aim to address this imbalance and improve home ownership accessibility.
S&P Global Ratings has identified rising mortgage arrears in Sydney and Melbourne’s outer suburbs, particularly among younger borrowers and recent buyers. Pakenham in Melbourne’s south-east leads with 2.99% of loans over a month behind, compared to the national average of 0.85%. Declining property values are also limiting refinancing options, exacerbating financial strain for struggling households.