Life now tougher for borrowers than 17pc interest days, analysis finds

Households are facing tougher conditions than during the late 1980s and 1990s when it comes to home loan interest, a KPMG economist says. (ABC News: Declan Bowring) New economic analysis has found that, over the past two years, Australian households have faced tougher conditions than they did when the RBA's cash rate reached 17.5 per cent in 1989. KPMG senior economist Terry Rawnsley said gen X households faced the toughest interest rate burden during the global financial crisis. If the RBA hiked the cash rate again, it would see interest repayments head towards 6 per cent of household income, Mr Rawnsley estimated. Link copiedShareShare articleNew economic analysis could put to bed the inter-generational argument about house prices and mortgage pressure, which plays out constantly at family gatherings and in internet comment sections. The double-digit rates on home loans in Australia in the late 1980s and early 90s are often held aloft as the ultimate experience of extreme financial pain. But KPMG senior economist Terry Rawnsley has found that, over the past two years, Australian households have faced tougher conditions than they did when the Reserve Bank's cash rate reached 17.5 per cent in 1989. His analysis of Australian Bureau of Statistics (ABS) data on home loans, personal loans and credit card interest payments over the past 40 years reveals that households have recently faced one of the heaviest interest rate burdens on record. Economic analysis by KPMG finds that gen X carried the heaviest interest burden. (ABC News: Fletcher Yeung) After comparing interest payments to incomes as an average across all households, not just households with home loans, he said things were worse now than they were almost four decades ago. "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," Mr Rawnsley said. Moreover, a heavy burden also fell on gen-X households during the global financial crisis, he found. According to Mr Rawnsley, total interest payments on debt hit a historical low of 2.6 per cent of household income in the March quarter of 2022. If you've been wondering how and why Australian house prices spun out of control you're not alone. One filmmaker was so depressed by it he went out and shot a documentary. But they hit a recent peak of 5.9 per cent in the December quarter of 2023 and averaged 5.8 per cent between September 2023 and March 2025. That cycle occurred when the RBA aggressively hiked the cash rate target from 0.1 per cent to 4.35 per cent. In contrast, during the 1989-90 inflation spike, total interest payments peaked at 5.7 per cent of household income in the March quarter of 1990 and averaged 5.6 per cent between September 1989 and June 1990. But according to Mr Rawnsley, the toughest interest rate burden on households during the past 40 years "has largely been carried by gen X" during the time around the global financial crisis (GFC). That is when total interest rates as a share of income peaked at 7.9 per cent in June 2008, when the cash rate was 7.25 per cent. Who had it toughest in the housing market is a topic of generational dispute. (ABC Radio Sydney: Amanda Hoh) He found that for almost a decade between September 2005 and March 2013, interest repayments averaged 6.6 per cent of household income. "What set the GFC apart was that central banks effectively lost control of interest rates. As the global system seized up, rates stayed higher for longer," he said. Despite a recent downturn in the housing market, with Cotality data showing Sydney and Melbourne home values fell at least 1 per cent in June, values are still 7.3 per cent higher than a year ago nationally. The analysis also found Victorian households are currently paying the highest interest repayments as a share of household income in the country, at 6.9 per cent, for counter-intuitive reasons. Mr Rawnsley said since property prices have fallen in Victoria in recent years, it has made it more affordable for first home buyers to buy a home, so the amount of debt that Victorians are carrying has increased. Australian home values record their biggest decline in more than three years as the housing market slowdown that began in Sydney and Melbourne spreads across the country. "First home buyers typically have larger mortgages and higher debt burdens relative to their incomes. Victoria's more affordable homes have lifted home-ownership and subsequently pushed the average interest repayments up to 6.9 per cent, well above other states," he said. "Victorians' higher debt burden is actually a symptom of home-ownership success, but it does mean the pain of interest rate rises will hit households harder than other states." He said comparing 2024-25 to the historical lowest point for interest payments to household income in 2021-22, Victoria has seen the largest increase (3.8 percentage points) in recent years, followed by New South Wa

Life now tougher for borrowers than 17pc interest days, analysis finds

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