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🇦🇺 Australia /Economy & Trade

Life now tougher for borrowers than 17pc interest days, analysis finds

From ABC Australia · () English

Summarized and contextualized by DistantNews.

At a glance

Analysis Named sources Context piece
  • New economic analysis suggests Australian households have faced tougher financial conditions in the past two years than during the high-interest rate period of the late 1980s and early 1990s.
  • KPMG senior economist Terry Rawnsley found that recent interest payments on debt as a share of household income have been higher than the peak experienced during the 17.5% cash rate era.
  • The analysis indicates that Generation X households bore the heaviest interest rate burden, particularly around the time of the Global Financial Crisis, due to larger loans and persistently higher rates.

Australian households have endured more challenging financial conditions over the past two years than during the era of double-digit interest rates in the late 1980s and early 1990s, according to new economic analysis. KPMG senior economist Terry Rawnsley's findings challenge the common perception that the 17.5% cash rate peak in 1989 represented the historical high for mortgage stress.

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.

— Terry RawnsleyKPMG senior economist Terry Rawnsley discussing historical interest rate burdens on Australian households.

Rawnsley's analysis of Australian Bureau of Statistics data reveals that households have recently faced one of the heaviest interest rate burdens on record. Total interest payments on debt reached a recent peak of 5.9% of household income in the December quarter of 2023, averaging 5.8% between September 2023 and March 2025. This occurred as the Reserve Bank of Australia aggressively hiked the cash rate from 0.1% to 4.35%.

But the data shows that borrowers have actually faced tougher conditions over the past few years.

— Terry RawnsleyKPMG senior economist Terry Rawnsley comparing current financial conditions to past periods of high interest rates.

In contrast, during the 1989-90 inflation spike, total interest payments peaked at 5.7% of household income. The analysis highlights that Generation X households experienced the most severe interest rate burden, particularly during the Global Financial Crisis. From September 2005 to March 2013, interest repayments averaged 6.6% of household income, peaking at 7.9% in June 2008 when the cash rate was 7.25%.

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.

— Terry RawnsleyKPMG senior economist Terry Rawnsley explaining the prolonged high interest rates during the Global Financial Crisis.

Rawnsley noted that the GFC period was distinct because central banks lost control of interest rates, which remained high for longer. He also pointed out that today's higher house prices mean larger loans, making household budgets more vulnerable to even modest interest rate increases.

And in today's economy higher house prices have led to bigger loans, leaving household budgets susceptible to even the most modest of interest rate rises.

— Terry RawnsleyKPMG senior economist Terry Rawnsley on the impact of current housing market conditions on household finances.
DistantNews Editorial

Originally published by ABC Australia. Summarized and contextualized by our editorial team with added local perspective. Read our editorial standards.

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