Ratio of interest payments to disposable income in Australia - Data and Analysis (1978-2034)

IBISWorld forecasts that the ratio of interest payments to disposable income will climb by 0.23 percentage points to 8.03% in 2026-27. The cash rate is a key factor in determining the interest costs households pay. While successive cash rate cuts in 2025 underpinned a dip in the ratio in 2025-26 from a 13-year high in 2024-25, the Reserve Bank of Australia has raised the cash rate four times in 2026, to 4.60% in September 2026, in response to inflation remaining above target. Consequently, these hikes have exerted pressure on the ratio upwards.The ratio of interest payments to disposable income has ballooned over the past five years as the RBA introduced record-low interest rates in response to the pandemic to stimulate wider economic activity. Additionally, the low-interest-rate environment encouraged households to take on more debt, as a record-low cash rate of 0.1% kept interest repayments subdued. A surging residential property market also prompted more mortgage activity as residential real estate became an increasingly attractive investment. Despite intensifying household debt, a low cash rate environment helped reduce interest repayments as a proportion of disposable income over the pandemic.In 2022-23, the RBA increased the cash rate to tame out-of-control inflation, impacting large swathes of individuals who had increased their debt during the pandemic, as interest payments on outstanding debt skyrocketed. High inflation led to a growing cost of living, causing a contraction of household disposable incomes. Rising interest payments and a contraction in disposable income led to a spike in the interest-to-disposable-income ratio in 2022-23 and 2023-24. However, once inflation was brought under control and disposable income began to recover, the ratio stabilised in 2024-25, then fell in 2025-26 as the RBA lowered the cash rate. Renewed cash rate rises in 2026 have now pushed the ratio back up in 2026-27. In sum, IBISWorld forecasts the interest payments-to-disposable income ratio to swell at an average annual rate of 0.84 percentage points over the five years through 2026-27.