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Who had it worse? The hidden shift behind Australia’s generational mortgage debate

Published July 6, 2026 at 4:43 AM UTC

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Recent research has revealed that Australian households are under greater mortgage stress than ever before, surpassing even the challenges faced during the 1989 interest rate spike. An analysis by KPMG, utilizing historical data from the Australian Bureau of Statistics (ABS), indicates that the proportion of household income allocated to interest payments has reached unprecedented levels. In 1989, during the inflation surge, interest payments accounted for 5.7% of household income. By 2023, this figure had risen to 5.9%, and projections for the second quarter of 2026 suggest it will climb to 5.4%, with expectations of further increases. Terry Rawnsley, Director of Planning and Infrastructure Economics at KPMG, emphasized that the current situation is more challenging than the 17% interest rate period of the late 1980s. The primary factor contributing to this heightened stress is the substantial increase in house prices. While interest rates are lower today—the Reserve Bank of Australia maintained the cash rate at 4.35% in June—the average loan size has significantly escalated. For instance, a $400,000 mortgage at a 5% interest rate results in the same interest payments as a $100,000 mortgage at a 17% rate. This escalation in loan sizes has led to a national average home loan of $735,000 for owner-occupiers, with an average variable interest rate of 5.93%, culminating in an average monthly repayment of $4,300. Associate Professor Ben Phillips from the Australian National University noted that while 5.9% may seem modest, it applies to approximately 35% of the population with mortgages—a significantly higher proportion than in the 1980s. He also pointed out that, despite higher repayments, Australia is a wealthier nation today, which may offset some of the financial strain. Geographically, Victoria has the highest interest repayments as a percentage of household income at 6.9%. Rawnsley explained that improved housing affordability in the state over the past five years has inadvertently increased exposure to interest rate hikes. First-time buyers, who typically have larger mortgages relative to their incomes, are particularly affected. Other states report lower figures: South Australia at 5.7%, New South Wales at 5.6%, Queensland at 5.5%, and Western Australia at 5.3%. The Australian Capital Territory, Tasmania, and the Northern Territory have interest repayments below 5%, reflecting lower home prices and, consequently, lower homeownership rates. When comparing the 2024-25 period to the historical low in 2021-22, Victoria experienced the largest increase in interest repayments as a percentage of income, followed by New South Wales and South Australia. The generational impact of these financial pressures varies. The Gen X cohort, particularly during the Global Financial Crisis (GFC), faced significant challenges, with interest payments peaking at 7.9% of income in June 2008 when the cash rate was 7.25%. For nearly a decade between September 2005 and March 2013, interest repayments averaged 6.6% of household income. Rawnsley noted that Gen X had a particularly tough period during the GFC and the subsequent years. In contrast, the 17% interest rate period of the late 1980s ranks third in terms of severity. Phillips observed that while the 'deposit gap' has made housing more challenging for first-time buyers, once individuals are in the market, conditions may not be significantly more difficult than in the past. He also highlighted that, despite higher debt levels, most Australians seem to manage repayments without severe consequences. Rawnsley added that Australians are often willing to make personal sacrifices to maintain homeownership, such as cutting discretionary spending or taking on additional work. He contrasted this with the U.S., where bankruptcy was more common during the GFC, noting that Australians are more inclined to hold onto their home loans. Phillips also suggested that the perception of the 1980s interest rate period as particularly challenging may be influenced by historical context, as Australia fared better than many other countries during the GFC. In summary, the analysis underscores that while interest rates are currently lower than in the late 1980s, the substantial increase in loan sizes and house prices has led to greater mortgage stress for Australian households across all generations. Addressing this issue requires a multifaceted approach, including measures to improve housing affordability, increase housing supply, and support households in managing their financial commitments.