KPMG Australia analysis of ABS data on home loans, personal loans and credit cards interest payments over the past 40 years reveals households are now facing one of the heaviest interest burdens on record.
Over the past two years, households have tougher conditions than they did when the RBA cash rate reached 17.5 percent in 1989.
The KPMG analysis looked at interest payment to income as an average across all households, not just those with home loans. The ratio reflects, interest payments and not principal repayments.
After hitting a historical low of 2.6 percent in the March quarter 2022, interest payments on debt peaked at 5.9 percent of household income in the December quarter of 2023 and averaged 5.8 percent between September 2023 and March 2025. This coincided with the RBA increasing the cash rate from 0.1 percent to 4.35 percent.
During the 1989-90 inflation spike, interest payments only peaked at 5.7 percent of household income in the March quarter of 1990 and averaged 5.6 percent between September 1989 and June 1990.
“The 17-18 percent interest rate period of the late 80s and early 90s is often cited as the historical peak for home loan stress, but the data shows that borrowers have actually faced tougher conditions over the past few years,” said KPMG Senior Economist Terry Rawnsley.
However, the toughest burden on households has largely been carried by Gen X around the time of the GFC when interest as a share of income peaked at 7.9 percent in June 2008 when the cash rate was 7.25 percent.
For almost a decade between September 2005 and March 2013, interest repayments averaged 6.6 percent 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,” Rawnsley said.
“By contrast, other peaks have largely been driven by the RBA deliberately tapping the brakes, lifting rates briefly to cool inflation. “
“In today’s economy higher house prices has led to bigger loans, leaving household budget’s susceptible to even the most modest of interest rate rises.”