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Business Environment Profiles - Australia

Mortgage affordability

Published: 11 October 2024

Key Metrics

Mortgage affordability

Total (2025)

64 Percentage

Annualized Growth 2020-25

-2.7 %

Definition of Mortgage affordability

This report analyses mortgage affordability in Australia, which is measured as the proportion of a household's monthly income that remains after making their mortgage repayment. This is calculated based on the average monthly repayments for a standard 25-year mortgage on the mean house price less a deposit in Australia. An increase in the percentage indicates an improvement in the affordability of the average mortgage. The data for this report is sourced from the Australian Bureau of Statistics and is measured as a percentage of average household income.

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Recent Trends – Mortgage affordability

IBISWorld forecasts the proportion of household income remaining after making mortgage repayments to climb by 0.9 percentage points in 2024-25 to 63.7%. This indicates that mortgages are expected to become slightly more affordable for households over 2024-25, as a lower proportion of their income is allocated to repayments. This comes about as interest rates are anticipated to slightly fall in 2024-25 as the Reserve Bank of Australia (RBA) seeks to alleviate concerns of an economic slowdown despite remaining inflationary pressures. The associated dip in the cost of borrowing is expected to allow for slightly more mortgage affordability as repayment rates fall. Despite this, with the cash rate still high compared to previous lows over the past five years, mortgage affordability still remains out of reach for many.

Interest rates are typically the primary driver of mortgage affordability and are responsible for much of the change in mortgage repayments. Before the pandemic, global economic growth concerns like slower growth, below-target inflation and rising unemployment had driven the cash rate to historic lows – reaching its lowest rate in November 2020 and staying low until May 2022. This low cash rate translated into lower mortgage interest rates for households, making it less costly to borrow money. The subdued economic activity caused by the COVID-19 pandemic led the RBA to extend the length of time the cash rate would remain low as it sought to stimulate the economy and encourage lending. At the same time, competition between lenders also reduced interest rates. This has helped partially offset the rise in household mortgage repayments over the period.

Another major component of mortgage affordability is residential property prices. Residential housing prices have grown enormously over most of the past five-year period because of the demand-supply imbalance. Although trends in residential property prices can vary by state, average residential housing prices have grown across all states and territories over the period. Low interest rates and increasing demand for residential property from owner-occupiers and first home buyers fuelled strong housing price growth. In addition, government incentives like the First Home Buyer Schemes, negative gearing and capital gains tax discounts provided investors with additional incentives to purchase residential property, fuelling the rise in house prices. Supply-side induced pressures, driven by surging construction costs and labour scarcity, have slowed construction activity, exacerbating the price hike. Tighter lending standards and restrictions on high loan-to-value ratios and new interest-only lending led to a decline in housing prices in 2018-19, before growth resumed the following year. Some households ran into financial difficulty with employment conditions deteriorating at the height of the pandemic, which led them to defer home loan repayments. While most housing loans resumed repayments as mortgage deferrals ended in early 2021, deferrals were again offered to affected borrowers following further lockdowns in July 2021.

High rates of overseas migration into Australia have pushed housing prices further upwards in recent years—especially in 2023, which saw 737,170 arrivals, the largest number over the past 20 years. This, combined with favourable policies like negative gearing, capital gains tax discounts and slow housing approvals, has led to a demand-supply imbalance, further contributing to the sustainability of high housing prices in Australia. Henceforth, in recent years, high interest rates and housing prices have contributed to higher monthly mortgage repayments over the past five years. However, this has been partially curbed by growth in household incomes. Low unemployment rates and government support packages have supported income growth, limiting declines in housing affordability over the same period. Overall, IBISWorld forecasts the proportion of household income remaining after making mortgage repayments to fall at an average annual rate of 2.74 percentage points over the five years through 2024-25.

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5-Year Outlook – Mortgage affordability

IBISWorld forecasts the proportion of household income remaining after making mortgage repayments...

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