New analysis suggests Australian households face tougher conditions than late 80s/early 90s

New 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.

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.

Charts don't lie

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.

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.

See the chart below.

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.

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.

Victorian households have highest interest burden

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.

"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 Wales and South Australia (3 percentage points).

What will happen to debt burdens from here?

Mr Rawnsley said that in the March quarter of 2026, Australian households paid a total of $33.6 billion in interest on dwellings and consumer debt loans.

It was the fourth-highest on record, with the highest being in March 2025 ($34.3 billion).

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He said although the RBA's rate cuts through 2025 provided some relief, three rate increases this year have since pushed the repayment burden back up to 5.4 per cent in March 2026, up from 5.2 per cent in the previous quarter.

"Another interest rate rise will see interest repayments head towards 6 per cent of household income," he said.

But at the moment, economists do not agree about the next direction for interest rates.

Australia's unemployment rate is slowly trending higher, underlying inflation is trending higher, and the economy is slowing down.

The RBA has said it was willing to do what it takes to get inflation under control, but it was also conscious of a weakening economy and labour market.