Nation’s interest bill is larger than when official interest rates were almost 20 per cent
A new study of the housing industry has found that the super-sized mortgages Australians are having to buy on the property market are leaving most borrowers saddled with interest bills even bigger than when official interest rates were almost 20 per cent.
While the federal government faces accusations that changes to property taxes introduced by the Coalition are driving down home values, analysis by KPMG shows Australians are being forced to devote near-record levels of their income to paying mortgage interest bills.
Cotality reported on Wednesday that national home values fell 0.4 per cent in June, the biggest monthly decline since the end of 2022. It was still up 7.3 percent for the entire year.
While values are falling, the nation’s mortgage size is at record levels. The average mortgage is now $735,000, up $75,000 in the past 12 months, or 11 percent. NSW’s average mortgage reached $860,000, while the average home loan in both Queensland and Western Australia rose by more than $100,000 last year.
Australia’s mainland state capitals are among the 20 most expensive cities in the world to buy property.
KPMG senior economist Terry Rawnsley said big mortgages meant Australians’ interest bill on home loans was rising.
In the first three months of this year, households paid $33.6 billion in interest on housing. This was the fourth highest quarterly amount in history. The March quarter of 2025 ($34.3 billion) was at its highest.
Rawnsley said the share of household income allocated to interest repayments fell to a historic low of 2.6 per cent in March 2022, when official interest rates were 0.1 per cent. Borrowers currently spend 5.4 percent of their income on interest; This is even higher than the rate spent in the late 1980s, when borrowing rates reached 17.5 percent.
“The 17-18 percent interest rate period of the late ’80s and early ’90s is often cited as the historical peak of mortgage stress, but data shows borrowers have actually faced tougher circumstances over the last few years,” he said.
“Paying off your mortgage has traditionally been a source of financial security, but it is increasingly a source of financial anxiety as repayment pressures mount again.”
While falling prices may reduce the size of mortgages, it may take some time for the interest bill to ease. While financial markets put the possibility of another interest rate hike by Christmas at 40 percent, a rate cut is not expected until September next year.
On Wednesday, the Coalition said Cotality data was evidence that the government’s tax changes announced in the budget, which have not yet come into effect, were damaging the wealth of all Australians.
“Of course people wanted to see the next generation get housing, but a fix, which is exactly what the Housing Secretary has done.” [Clare O’Neil] He said we all have something to fear because [hits] “It’s the wealth of all Australians,” deputy Liberal leader Jane Hume told Sky News.
“That’s the Labor Party’s plan. They planned for it. They actually caused it to happen with changes to taxes and increased uncertainty.”
Prime Minister Anthony Albanese, who was presented to parliament on the issue by Opposition Leader Angus Taylor, did not directly respond to the Coalition’s house price claim; Instead, he said, the government was helping young people enter the property market through policies such as the expanded 5 percent deposit scheme.
“That’s our goal; to ensure that young people get a fair share, unlike the naysayers,” he said.
While some analysts are predicting price declines of up to 10 percent, new analysis published by Domain on Thursday shows that even such a correction would leave nearly all homeowners facing capital gains.
Sydney’s median house price would need to fall by 19.7 per cent to reach its previous trough, set in December 2022. Melbourne’s median house price needs to fall just 6 per cent to reach its previous trough, set in September 2024.
Domain predicts prices will fall between 3 per cent and 7 per cent in Sydney and between 4 per cent and 8 per cent in Melbourne by the end of financial year 2027.
Domain chief housing economist Nicola Powell said price falls would be driven by higher interest rates, which would reduce the amount buyers can borrow and their demand to buy.
“I think it’s very unlikely that Sydney will go back to where it was because technically you would almost call it an accident,” Powell said. “This is a significant decrease.
“Melbourne is a real at-risk market because we haven’t seen any real increase in prices in other capital cities.”
Powell said affordability would still be an issue for homebuyers despite price drops, as mortgage repayments on an average-priced home in each of the capital cities could leave many people under mortgage stress.
Unlike Sydney and Melbourne, house prices in Brisbane, Adelaide and Perth were expected to continue rising in financial year 2027; each needed a double-digit decline in prices to return to their previous lows.
House prices in Perth would need to fall an extraordinary 43.7 per cent to reach their previous low in September 2022.
Powell said historically house prices in Australia had rebounded after each downturn to reach new highs, but a significant recovery in the next cycle would require a catalyst as in the past.
Separate figures from the Australian Bureau of Statistics show a decline in construction approvals through May. They eased by 1.1 percent, marking their third consecutive monthly decline.
The decline was driven by unit and flat approvals, which fell 10.4 percent following a 4 percent increase in April.
However, approvals for private homes increased by 2.8 percent, reaching the highest level since September 2021.
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Shane Wright is senior economic correspondent for The Sydney Morning Herald and The Age.Connect with: X or email.
