New analysis has revealed that households are devoting a larger slice of income to interest than in the 17 per cent high-rate era.
Australian households are now shouldering a heavier mortgage and debt‑service burden than they did during the late‑1980s period of 17–18 per cent interest rates, according to fresh analysis from KPMG senior economist Terry Rawnsley.
Rawnsley’s work compares interest payments on home loans, personal loans, and credit cards to total household income, averaging across all households rather than only those with mortgages.
On this measure, he said that the past two years had delivered one of the heaviest interest burdens on record, even though nominal mortgage rates are far below the late‑1980s peak.
“The 17–18 per cent interest rate period of the late 80s and early 90s is often cited as the historical peak for home loan stress,” he said.
He then contrasted this with the data he had compiled, saying that the “data shows that borrowers have actually faced tougher conditions over the past few years”.
Through the first three months of this year, households paid $33.6 billion in interest on dwellings, making it the fourth‑highest quarterly mortgage interest bill on record.
The March quarter of 2025 was higher still, at $34.3 billion.
Despite mortgage rates averaging around half the level reached at the end of the 1980s, Rawnsley’s comparison showed that households are now devoting about 5 per cent of income to home‑loan interest, and 5.4 per cent once consumer debt is included, versus an early‑1990 peak of roughly 5.7 per cent for all interest.
Rawnsley said that the current burden had not yet fully captured the effect of the recent cash‑rate increases.
He said that the combined burden “will push towards 6 per cent once the full impact of this year’s three interest rate hikes flow through to borrowing rates”.
Bigger loans, more anxiety
A central theme in the analysis is that today’s stress is being driven by debt levels as much as by interest rates themselves.
Higher house prices over recent decades mean borrowers are carrying substantially larger mortgages, so incremental rate rises translate into much larger jumps in dollar repayments and in the share of income required to cover them.
Rawnsley highlighted the psychological shift that came with this pressure.
“In the past, paying off a home loan has been a source of security, it’s increasingly a source of anxiety,” he said.
He identified Generation X (those between the ages of 46 and 61) as having carried the largest interest burden over the past 40 years, particularly around the time of the global financial crisis.
Victoria emerges as a hotspot
KPMG’s breakdown of the burden by state revealed that Victorian households are currently paying the highest proportion of their income in interest in the country, at 6.9 per cent.
Rawnsley linked this to the way price falls and affordability have interacted with borrowing patterns.
“First home buyers typically have larger mortgages and higher debt burdens relative to their incomes. Victoria’s more affordable homes have lifted home ownership and subsequently pushed the average interest repayments up to 6.9 per cent, well above other states,” he said.
“Victorians’ higher debt burden is actually a symptom of home ownership success, but it does mean the pain of interest rate rises will hit households harder than other states.”
[Related: Affordability plunges to 30-year low as costs climb]
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