New economic analysis by KPMG senior economist Terry Rawnsley reveals that over the past two years, Australian households have faced heavier interest rate burdens than when the Reserve Bank's cash rate reached 17.5% in 1989.
Rawnsley's study, which analyzed Australian Bureau of Statistics (ABS) data on home loans, personal loans, and credit card interest payments over the last 40 years, found that the average interest payments relative to household incomes are now worse than nearly four decades ago. This comparison includes all households, not just those with home loans.
"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," Rawnsley said. However, recent conditions have surpassed that benchmark.
Interest payments on debt hit a historical low of 2.6% of household income in the March quarter of 2022 but have since risen. Despite some relief from the Reserve Bank of Australia's (RBA) rate cuts through 2025, three rate increases in 2026 pushed the repayment burden back up to 5.4% in March 2026, up from 5.2% the previous quarter. Another rate rise could push repayments toward 6% of household income.
Regionally, Victoria has seen the largest increase in interest payments relative to household income, rising by 3.8 percentage points compared to the historical low in 2021-22. New South Wales and South Australia follow with increases of around 3 percentage points. Victoria's higher debt burden is attributed to its more affordable homes, which have increased home ownership and led to average interest repayments of 6.9%, well above other states.
Rawnsley also noted that the heaviest interest rate burden over the past 40 years was largely borne by Generation X around the time of the global financial crisis (GFC), a period when central banks lost effective control of interest rates, causing them to remain high for longer.
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