Mortgage affordability in Australia - Data and Analysis (2004-2034)

IBISWorld forecasts the proportion of household income remaining after making mortgage repayments to dip by 1.7 percentage points in 2026-27 to 50.5%, indicating mortgages will become less affordable as a higher share of income goes to repayments. The Reserve Bank of Australia (RBA) has lifted the cash rate by 50 basis points since February 2026, to 4.35%, as inflationary pressures have intensified amid domestic capacity constraints and Middle East conflict-driven disruption to energy markets, which has lifted fuel and related commodity prices and flowed through to broader consumer prices. With underlying inflation expected to remain above the RBA's target range for an extended period, the Bank has limited scope to reduce interest rates. Higher interest rates will continue to reduce the size of mortgages borrowers can afford in 2026-27, limiting home buyers' access to finance despite softer property prices. Interest rates are typically the primary driver of mortgage affordability and are responsible for much of the change in mortgage repayments. The cash rate was at historic lows as the central bank sought to address slower growth, below-target inflation and rising unemployment during the pandemic. Subdued economic activity led the RBA to extend the period during which the cash rate would remain low, as it sought to stimulate the economy and encourage lending. The cash rate reached its lowest level in November 2020 and remained low until May 2022, which translated into lower mortgage interest rates and made it less costly for households to borrow. However, a large share of borrowers locked into fixed-rate loans at around 2% during this period, and as these fixed terms expired between 2023 and 2024, many borrowers rolled onto variable rates exceeding 6%, causing a significant increase in repayments that weighed heavily on affordability in the second half of the five-year period.Another major component of mortgage affordability is residential property prices. Residential housing prices have grown enormously over most of the past five years because of a demand-supply imbalance. Population growth, constrained housing supply, and strong demand from owner-occupiers and first-home buyers have fuelled price growth. Government buyer-support initiatives, like the 5.0% deposit scheme and the First Home Super Saver Scheme, have provided eligible first-home buyers with additional assistance to enter the market, supporting demand. Supply-side pressures, driven by surging construction costs, labour scarcity and capacity constraints in the building sector, have slowed dwelling completions, exacerbating the rise in house prices.High rates of overseas migration into Australia have pushed housing prices further upwards in recent years, especially in 2022-23, which saw 737,170 arrivals, the largest number over the past 20 years. While migration has cooled in recent years, it remains elevated relative to pre-pandemic averages. This, combined with favourable policies like negative gearing, capital gains tax discounts and slow housing approvals, has amplified the demand-supply imbalance, contributing to sustained high housing prices. High interest rates and housing prices have contributed to higher monthly mortgage repayments in recent years, though this has been partially curbed by growth in household incomes. Unemployment has drifted higher but remains historically moderate, while government tax cuts and cost-of-living support packages have supported household incomes, limiting even steeper declines in housing affordability. Overall, IBISWorld forecasts the proportion of household income remaining after mortgage repayments to fall at an average annual rate of 3.26 percentage points over the five years through 2026-27.