Why Today's Mortgage Pain Is Not Just a Rate Story

The headline comparison is striking: households have recently faced tougher conditions than during the late 1980s and early 1990s, when the Reserve Bank cash rate famously climbed to 17.5%. The reason is not that today’s rates are higher. It is that loan sizes are far larger relative to income, meaning each rate movement now lands on a much bigger debt base.

KPMG’s analysis measures interest payments as a share of household income across all households, not only people with home loans. It also measures interest only, not principal repayments. Even with that caveat, the trend is important for anyone assessing a new loan, refinancing, or trying to understand why a seemingly modest rate rise can feel so severe in the household budget.

Interest payments on debt peaked at 5.9% of household income in the December quarter of 2023 and averaged 5.8% between September 2023 and March 2025. That compares with 5.7% at the March 1990 peak. After some relief from rate cuts through 2025, three interest rate increases in 2026 pushed the burden back up to 5.4% in the March quarter.

The data also adds nuance to the intergenerational debate. Gen X households carried the highest burden around the global financial crisis, when interest as a share of income reached 7.9% in June 2008. For younger buyers today, however, the challenge is that high property prices have made the starting debt load much larger, leaving less room for error if rates rise, income softens, or expenses increase.

For borrowers, the practical message is to review rather than panic. A lower advertised rate is only one part of the picture. Fees, offset features, redraw access, fixed versus variable settings, loan term, repayment flexibility and refinancing costs can all affect the real outcome. Borrowers should compare their options and model repayment scenarios before making changes.

This story is an extension of the broader pressure already visible across Australia’s lending market. Whether you are buying, refinancing or consolidating debt, the key question is no longer simply whether you can obtain finance. It is whether the structure remains affordable under realistic stress, including the possibility of further rate increases.