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Australian households face heaviest mortgage interest burden in decades
Households have been facing some of the heaviest mortgage interest burdens on record, battling tougher conditions than when the cash rate was at its highest in Australia.
New analysis of Australian Bureau of Statistics (ABS) data has shown that households have faced tougher conditions in the past two years than they did when the Reserve Bank of Australia (RBA) cash rate reached 17.5 per cent in 1989.
KPMG’s analysis showed that, nationally, interest payments on debt peaked at 5.9 per cent of household income in the December quarter of 2023, and averaged 5.8 per cent between September 2023 and March 2025.
According to the report, the figures coincided with the RBA increasing the cash rate from the historic COVID-19-era low of 0.1 per cent to 4.35 per cent.
During the 1989–90 inflation spike, interest payments only peaked at 5.7 per cent of household income in the March quarter of 1990 and averaged 5.6 per cent between September 1989 and June 1990.
KPMG senior economist Terry Rawnsley said the high-interest-rate period of the late 80s and early 90s was often considered the historical peak for loan stress, but borrowers had faced tougher conditions in the past few years.
Rawnsley said that, during the global financial crisis (GFC) in the 2000’s, Gen X carried the most financial burden, with interest as a share of income peaking at 7.9 per cent in June 2008 when the cash rate was 7.25 per cent.
For almost a decade, between September 2005 and March 2013, interest repayments averaged 6.6 per cent of household income.
“What set the GFC apart was that central banks effectively lost control of interest rates. As the global system seized up, rates stayed higher for longer,” Rawnsley said.
He said, by contrast, other peaks had largely been driven by the RBA deliberately tapping the brakes, lifting rates briefly to cool inflation.
“In today’s economy, higher house prices have led to bigger loans, leaving household budgets susceptible to even the most modest of interest rate rises.”
According to the analysis, in FY2025, Victorian households had actually paid the highest interest repayments as a share of household income out of all the capitals, at 6.9 per cent.
Rawnsley said that improved affordability over the past five years had actually put more pressure on Victorians, rather than subduing it.
“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 that despite the state’s higher debt being a symptom of home ownership success, at the same time, the pain of interest rate rises had hit households harder than in other states.
South Australia’s interest repayments were the second-highest (5.7 per cent), NSW followed (5.6 per cent), then Queensland (5.5 per cent) and Western Australia (5.3 per cent), all below the national average of 5.8 per cent.
While the ACT, Tasmania, and the Northern Territory all had interest repayments of less than 5 per cent, reflecting lower home prices, the data showed that the jurisdictions also had lower home ownership rates.
When comparing 2024–25 to the historical lows in 2021–22, Victoria saw the largest increase (3.8 percentage points), followed by NSW and South Australia (3.0 percentage points).
In total, in the March 2026 quarter, Australian households paid $33.6 billion in interest on dwellings ($31 billion) and consumer debt ($0.26 billion) loans.
It marks the fourth-highest interest debt on record, with the highest being in March 2025 ($34.3 billion).
Despite interest rate cuts in 2025 providing some relief, the analysis noted 2026 interest rate increases have pushed the repayment burden back up to 5.4 per cent in March 2026, up from 5.2 per cent in the previous quarter.
Rawnsley said that another interest rate rise would see interest repayments head towards 6 per cent of household income.
“Paying off a home loan has traditionally been a source of financial security. But increasingly, it is becoming a source of financial anxiety as repayment pressures rise again.”
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