The super-sized mortgages Australians need to buy into the property market have left most borrowers weighed down by interest bills even larger than when official interest rates were almost 20 per cent, new research of the housing sector has revealed.
As the federal government faces accusations from the Coalition that changes to property taxes are driving down home values, analysis by KPMG shows Australians are being forced to devote near-record levels of their income to servicing the interest bill on their mortgages.
Cotality on Wednesday reported that national dwelling values fell by 0.4 per cent in June, the single largest monthly decline since late 2022. Over the full year, they have still climbed by 7.3 per cent.
While values are easing, the size of the nation’s mortgages are at record highs. The average mortgage is now $735,000, an increase of $75,000, or 11 per cent, over the past 12 months. NSW’s average mortgage has reached $860,000, while in both Queensland and Western Australia, the average home loan has lifted by more than $100,000 over the past year.
Australia’s mainland state capitals are among the top 20 most expensive cities in the world to buy property.
KPMG senior economist Terry Rawnsley said the big mortgages meant the interest bill on Australians’ home loans had soared.
Through the first three months of this year, households paid $33.6 billion in interest on homes. It was the fourth-highest quarterly amount on record. The March quarter of 2025 ($34.3 billion) was the highest.
Rawnsley said the share of household income going to interest repayments had hit a historical low of 2.6 per cent in March 2022 when official rates were 0.1 per cent. Borrowers are now spending 5.4 per cent of their income on interest, which is even higher than the proportion spent in the late 1980s when borrowing rates reached 17.5 per cent.
“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, but the data shows that borrowers have actually faced tougher conditions over the past few years,” he said.
“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.”
While falling prices may reduce the size of mortgages, it could be some time before the interest bill eases. Financial markets put the chance of another rate rise at 40 per cent by Christmas, with a rate cut not expected until September next year.
The Coalition on Wednesday said the Cotality data was proof the government’s tax changes, which were announced in the budget and have yet to come into operation, were hurting the wealth of all Australians.
“Of course, people wanted to see the next generation get into housing. But a correction, which is exactly what the Housing Minister [Clare O’Neil] has said, is something that we should all be frightened of because that [hits] the wealth of all Australians,” deputy Liberal leader Jane Hume told Sky News.
“That’s Labor’s plan. They’ve planned for this. They’ve actually, with their changes in taxes and the increased uncertainty caused this to happen.”
Pushed in parliament on the issue by Opposition Leader Angus Taylor, Prime Minister Anthony Albanese did not directly respond to the Coalition’s house price claim, instead saying the government was helping young people get into the property market through policies such as its expanded 5 per cent deposit program.
“That is what we are aiming for, making sure that young people get a fair crack, unlike those opposite,” he said.
While some analysts are predicting price falls of up to 10 per cent, new analysis from Domain released on Thursday shows even that sort of correction would still leave almost all home owners sitting on a capital gain.
Sydney’s median house price would need to fall by 19.7 per cent to reach the previous trough set in December 2022. Melbourne’s median house price would need to fall only 6 per cent to reach its previous trough set in September 2024.
Domain has forecast prices will fall between 3 per cent and 7 per cent in Sydney by the end of the 2027 financial year, and between 4 per cent and 8 per cent in Melbourne.
Price falls would be fuelled by higher interest rates, which would reduce both the amount buyers could borrow and their demand to buy, Domain chief residential economist Nicola Powell said.
“I think for Sydney, it’s very unlikely to get back to where it was because technically, you’d be calling that almost a crash,” Powell said. “That is a significant amount to fall.
“Melbourne is the market at real risk because we haven’t seen the real run-up in price of the other capitals.”
Powell said affordability would still be an issue for home buyers, even with price falls, as home loan repayments on a median-priced home in each of the capitals could leave many in mortgage stress.
Unlike Sydney and Melbourne, house prices in Brisbane, Adelaide and Perth were expected to continue to rise during the 2027 financial year, with each needing a double-digit fall in prices to get back to previous troughs.
House prices in Perth would need to dive by an extraordinary 43.7 per cent, to reach their previous low of September 2022.
Historically, Australia’s house prices had recovered from each downturn, peaking at new levels, although a significant bounceback in the next cycle would require a catalyst as it had in the past, Powell said.
Separate figures from the Australian Bureau of Statistics show a drop in building approvals through May. They eased by 1.1 per cent, their third consecutive monthly fall.
The decline was driven by approvals of units and apartments, which fell by 10.4 per cent after a 4 per cent lift in April.
But approvals for private homes climbed 2.8 per cent to their highest level since September 2021.
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Shane Wright is a senior economics correspondent for The Sydney Morning Herald and The Age.Connect via X or email.
