Australian households are facing a mounting repayment squeeze, with another rate rise threatening a historic benchmark.
Property group REA has warned that another Reserve Bank of Australia (RBA) rate increase next month could leave Australian households purchasing a median-priced home facing a repayment burden approaching the 1989 record.
Under that scenario, servicing the mortgage would require 37.4 per cent of a typical household’s income, compared with the historical peak of 37.5 per cent in December 1989.
Westpac and Australia and New Zealand Banking Group (ANZ) anticipate a November cash rate increase, placing that benchmark within reach.
The calculation assumes buyers contribute a 20 per cent deposit and repay their loan over 30 years.
While the national measure remains below its peak, Queensland, South Australia, and Western Australia have already surpassed their previous records.
Price falls fail to restore affordability
REA economist Luc Redman said lower purchase prices had provided insufficient compensation for the loss of borrowing power, with households on smaller incomes particularly exposed.
He also suggested that wealth accumulated through property, savings, and superannuation could be limiting the slowdown in consumption normally associated with declining home values.
“While the decline in home prices tends to also reduce household consumption through the wealth effect, large equity gains, strong cash buffers, and higher superannuation balances may have softened this transmission mechanism more than has historically been the case, compounding the RBA’s inflation problem,” he said.
A separate Deloitte Access Economics estimate puts the additional annual interest bill at about $9,000 for an average-sized owner-occupier loan if the cash rate reaches 4.85 per cent.
Asked about REA’s findings over the weekend, federal Treasurer Jim Chalmers identified the long-running divergence between property prices and household earnings as a central contributor, pointing out that house prices had increased 540 per cent since 1989.
He said that imbalance had informed the government’s budget approach to making home ownership more accessible.
“House prices have increased at almost twice the rate of incomes since 1989, a big motivator behind our budget changes which are helping more people into home ownership,” he said.
Turning to the opposition’s fiscal proposals, Chalmers argued its spending commitments risked adding to inflationary pressure.
“By the Coalition’s own logic, their billions in unfunded spending promises would make inflation worse,” Chalmers said.
Missed payments reveal localised strain
Meanwhile, S&P Global Ratings has identified mortgage arrears concentrations across Sydney and Melbourne’s outer suburbs, highlighting difficulties among younger borrowers and those who bought recently.
Pakenham, in Melbourne’s south-east, led the reported locations: 2.99 per cent of loans were at least a month behind versus 0.85 per cent nationally.
Sydney’s Constitution Hill posted 2.4 per cent arrears, with its median property price dropping 10.5 per cent over the year to $1.3 million.
In Sydney’s north-western Baulkham Hills, arrears reached 2.3 per cent, alongside a 13 per cent fall in values to $1.7 million.
Declining valuations are also restricting refinancing options, adding another complication for households already struggling to meet their repayments.
[Related: Number of borrowers unable to refinance spikes]
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