Mortgage Stress Worse Today Than in the 1990s, Expert Says

Veteran real estate commentator Tom Panos argues that while 17.5 percent interest rates in the early 1990s were severe, today's mortgage holders are experiencing greater financial strain. This is primarily because current mortgage debt consumes a far larger portion of household income compared to the past.

Panos explained that in the early 1990s, homes were substantially cheaper relative to incomes. For example, Sydney's median house price in 1990 was approximately $187,000. With a 20 percent deposit, a mortgage would be around $150,000. At 17 percent interest, the annual interest cost was about $25,000.

In contrast, today, Sydney's median house price is around $1.7 million. An 80 percent mortgage would be approximately $1.36 million. Even at a lower rate of 6.4 percent, the annual interest alone amounts to roughly $87,000. Panos highlighted that households today are carrying debt loads that are eight to nine times their annual income, a burden not seen in the 1990s.

Australians' household debt has reached the equivalent of 178 percent of their annual disposable income as of June 2026, a level not seen since records began in 1977. Compounding this, borrowers are also contending with soaring prices for essentials like petrol, groceries, and electricity, leaving little financial breathing room.

Reserve Bank governor Michele Bullock recently warned that crushing inflation might necessitate a recession, as borrowers faced a fourth interest rate hike this year, pushing the cash rate to a 15-year high. Bullock stated that if inflation is not addressed, it will worsen, requiring higher interest rates and a more severely impacted economy.

Treasurer Jim Chalmers attributed some of the global rise in inflation and interest rates to the war in the Middle East, noting that Australian workers are paying a significant price for global conflicts they did not choose.

Shane Oliver, chief economist at AMP, calculated that the latest rate hike adds approximately $110 per month to the mortgage interest payments for someone with an average $700,000 mortgage, totaling an increase of $5,300 annually since January. He noted that while increased competition has kept mortgage rates from exceeding their 2023 high, they are approaching it. Oliver also indicated that the Reserve Bank had to raise rates to maintain its credibility in the face of persistent inflation, which has been above target for five of the last six years.

Financial markets are anticipating further rate hikes, with a strong possibility of another increase by February and a 70 percent chance of yet another by June next year, according to Oliver. Updated inflation data for August is expected to be released shortly after the central bank's decision. The last deep recession in Australia occurred in 1991.