Super-sized mortgages giving Australians a massive interest rate headache

The super-sized mortgages Australians need to buy into the property market have left most borrowers weighed down by interest bills even larger than when official interest rates were almost 20 per cent, new research of the housing sector has revealed.

As the federal government faces accusations from the Coalition that changes to property taxes are driving down home values, analysis by KPMG shows Australians are being forced to devote near-record levels of their income to servicing the interest bill on their mortgages.

Cotality on Wednesday reported that national dwelling values fell by 0.4 per cent in June, the single largest monthly decline since late 2022. Over the full year, they have still climbed by 7.3 per cent.

While values are easing, the size of the nation’s mortgages are at record highs. The average mortgage is now $735,000, an increase of $75,000, or 11 per cent, over the past 12 months. NSW’s average mortgage has reached $860,000, while in both Queensland and Western Australia, the average home loan has lifted by more than $100,000 over the past year.

Australia’s mainland state capitals are among the top 20 most expensive cities in the world to buy property.

KPMG senior economist Terry Rawnsley said the big mortgages meant the interest bill on Australians’ home loans had soared.

Through the first three months of this year, households paid $33.6 billion in interest on homes. It was the fourth-highest quarterly amount on record. The March quarter of 2025 ($34.3 billion) was the highest.

Rawnsley said the share of household income going to interest repayments had hit a historical low of 2.6 per cent in March 2022 when official rates were 0.1 per cent. Borrowers are now spending 5.4 per cent of their income on interest, which is even higher than the proportion spent in the late 1980s when borrowing rates reached 17.5 per cent.

“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, but the data shows that borrowers have actually faced tougher conditions over the past few years,” he said.

“Paying off a home loan has traditionally been a source of financial security. But increasingly, it is becoming a source of financial anxiety as repayment pressures rise again.”

While falling prices may reduce the size of mortgages, it could be some time before the interest bill eases. Financial markets put the chance of another rate rise at 40 per cent by Christmas, with a rate cut not expected until September next year.

The Coalition on Wednesday said the Cotality data was pr