Servicing a typical Australian home loan now takes 50.9 per cent of family income. That is the worst reading on record, according to a property research firm’s latest economic report, and it arrives while mortgage arrears are still under 1.5 per cent of loans. Those two numbers sit awkwardly together, and the gap between them is the story.
Mortgage arrears are low, but that is a lagging signal
Arrears tend to move after the pain starts, not before. Households first cut spending, draw down savings, pick up extra hours or lean on family. Only when those buffers run out do missed repayments show up in the data.
The report puts affordability down 3.3 percentage points over twelve months. Four interest rate rises this year and larger loan sizes did the damage, and together they wiped out the relief from last year’s rate cuts. A borrower who took out a big loan at the bottom of the cycle has had the least time to build a cushion.
So a sub-1.5 per cent arrears rate is reassuring, but it is a snapshot of who has coped so far. It says little about who can keep coping if rates stay high until at least 2027, which is what the report expects.
Key numbers
- Share of family income going to mortgage repayments: 50.9 per cent
- Fall in affordability over twelve months: 3.3 percentage points
- Arrears as a share of loans: under 1.5 per cent
- Time to Buy index: down 8.3 per cent to 88.4
Where a 50 per cent repayment share starts to bite
Half of income on repayments leaves little room for the rest of the household budget. Food, fuel, insurance, childcare and energy all compete for what is left. That is a squeeze, not yet a crisis, but it narrows the margin for error.
The catch is that averages hide the tail. A household on a lower income, or one with a single earner, can be well past the average share. For those borrowers, one unexpected bill or a spell of reduced work hours can tip a manageable loan into a missed payment.
Here is a simple rule of thumb. When repayments absorb this much of income, arrears risk depends less on the rate itself and more on how much slack the household has. Savings, a second income and an offset balance matter more than the headline rate.
Buyers have stopped applying
The demand side is already reacting. A mortgage brokerage found that applications, excluding refinancing, are down 24 per cent nationally since January. In Queensland the fall is 30 per cent.
That suggests many households are choosing to sit tight rather than stretch further. Refinancing is a different picture. The report says it is running at historic highs, which fits borrowers hunting for a better rate on the loan they already have, rather than taking on new debt.
In Queensland, first-home buyer applications are down 18 per cent and upgrader applications are down 15 per cent. Both groups are the ones most exposed to a high repayment share, because they are taking on the biggest new loans relative to income.
Investors are leaving, and rentals feel it later
Investors have retreated fastest. Their applications are down 44 per cent nationally, with Queensland’s 56 per cent drop the steepest of any state. The report links the pullback to uncertainty over capital gains tax and negative gearing changes.
The split by property type is stark. Investor applications for established homes fell 56 per cent, compared with 10 per cent for new builds. Investors are still willing to back new stock, but are walking away from existing dwellings where the tax treatment feels less certain.
This matters for renters. Investors supply a large share of the rental market, so fewer purchases today mean fewer rental properties tomorrow, and that is a slow-burn problem rather than an overnight one. It also links to what we have seen in property investor lodgements slumping as tax changes bite.
What the arrears numbers could do from here
There are three paths worth watching.
- Base case: Rates stay high, households keep adjusting, and arrears drift up gradually without a sharp break.
- Upside: Wage growth outpaces repayments, refinancing finds relief, and the repayment share eases.
- Downside: Job losses or another rate move push stretched borrowers past their buffers, and arrears rise faster than lenders expect.
The pressure is not evenly spread. Borrowers on variable rates feel every move immediately. Those rolling off fixed terms feel it in a lump. Our look at how the RBA’s rate hike risk is playing out for fixed-rate refinancers shows how uneven that can be.
For price, the link is indirect but real. Weaker demand and fewer investors tend to soften prices, as seen in Brisbane house prices falling as affordability and rates bite. Softer prices can themselves raise risk if a borrower needs to sell and the sale price falls below the loan.
A practical next step
If you hold a mortgage, work out your own repayment share and your buffer, not the national average. Check how many months of repayments your savings and offset would cover. If it is under three, talk to your lender about options before you need to, and compare what is available in our home loans, lenders and refinancing guide.
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General info, not financial advice.
