Mortgage stress in Australia is usually discussed in terms of the cash rate. That is the wrong dial to watch. A 17 per cent rate sounds brutal, but what actually decides whether a household can keep paying is how big the debt is relative to what the household earns.
New modelling by Primara Research for homeloanrates.com.au, drawing on ABS and RBA figures, puts numbers on that gap. Their estimate for Sydney: the average loan has grown from about $84,594 in the 1990s to roughly $841,693 in 2026. Servicing it takes about 66 per cent of a median income. The standard stress marker is 30 per cent.
Why debt-to-income beats the headline rate
A rate is a price. Debt-to-income is a load. When incomes lag far behind loan sizes, even a moderate rate produces a large repayment as a share of pay.
In the 1990s, loans were small against wages, so a very high rate hurt but the principal was manageable. Today the principal itself is the problem. Loans are roughly ten to thirteen times their 1990s size in nominal terms, while incomes have not grown anywhere near that fast.
That is why a rate of just over a third of the 1990s peak can still squeeze harder. The same reasoning is behind our earlier look at how this downturn compares with 1990 and 2008.
The capital-city picture
The pressure is not confined to Sydney.
- Adelaide: servicing an average loan once took about 42 per cent of income. Primara now puts it near 57 per cent.
- Brisbane: loans are around 13 times larger than in the 1990s, with the income share needed rising from 46 per cent to about 59 per cent.
- Sydney: already extreme at 66 per cent.
The Adelaide and Brisbane shifts matter most for risk. These markets were once seen as the affordable alternatives. They now carry serving-cost ratios that look much more like the big-city norm.
Key numbers
- Stress threshold: 30 per cent of income
- Sydney average loan: about $841,693, roughly 66 per cent of median income
- RBA has lifted the cash rate four times this year
- Next RBA decision: 3 November
How close is the forced-selling line?
Here is the catch. Stress is not the same as default. Most households under heavy strain cut spending, draw on savings, work more hours or extend loan terms long before they sell.
The system gets close to forced selling when three things line up: a high debt-to-income ratio, thin buffers, and a job-market shock. Rates alone do not trigger it. A rise in unemployment does, because it removes the income that the ratio depends on.
So the cash rate matters mainly as a tightener on the margin. Primara’s scenario of a fifth rise pushes Sydney to around 67 per cent, Brisbane to about 61 per cent and Adelaide to about 59 per cent. Those are modest increments on already high bases. The bigger point is that the cushion has largely been used up.
What this means for arrears and prices
Arrears tend to lag. Households first absorb the squeeze, so measured arrears can stay low while stress is high. That is a risk in itself, because low arrears can give false comfort.
For prices, the mechanism is borrowing capacity. Serviceability tests cap how much new buyers can borrow. With repayments consuming so much income, capacity shrinks, which limits what buyers can pay. Our piece on how rate hikes lock out median earners covers that side in more detail.
Price falls from this channel tend to be gradual and uneven. They are steeper where loan-to-income ratios are highest and where recent buyers hold the least equity.
What would change my mind
Two things would soften this reading. Strong wage growth would shrink the ratio over time without any price correction. And a slower rate path would ease the margin pressure. Neither is certain.
The opposite risk is a rise in unemployment. That is the event that turns stress into forced sales.
The practical take
If you hold a mortgage, test your repayments against your own income, not the national average. Check what your buffer looks like if rates rise once more and if household income dips. Knowing your own ratio matters more than watching the next cash rate decision.
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General info, not financial advice.
