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Mortgage stress is now more widespread than 2019 across cities and among entry-priced houses, according to new research.
High interest rates and rising property prices have led to greater levels of mortgage stress for borrowers compared to five years ago, research from Domain showed.
Domain’s latest First Home Buyer Report found that all capital cities excluding Darwin contained borrowers under mortgage stress, defined as when repayments exceed more than 30 per cent of household income.
In 2019, only borrowers in Sydney and Melbourne experienced mortgage stress for entry-priced houses.
For units, no city experienced mortgage stress in 2019. However at the start of 2025, mortgage stress for borrowers owning units was present in Sydney, Brisbane, and Adelaide.
Regions split on mortgage stress
Regional Australia offers the best affordability for entry-priced homes, according to Domain research.
In regional Australia, entry-priced units took up 25.9 per cent of household income, below the 30 per cent benchmark. By comparison, entry-priced houses exceeded the ‘mortgage stress’ level benchmark at 33 per cent.
In the capitals, affordability remains a struggle. Across the combined capitals, entry priced houses took up 47.1 per cent share of household income, while units required 30.7 per cent.
For entry-priced houses, Darwin was the only city free of mortgage stress for entry-priced houses, with repayments taking up 27.7 per cent of household income.
Perth was the next best city at 37.3 per cent, although above the 30 per cent threshold.
Sydney, Canberra, Melbourne, Brisbane, Adelaide and Hobart all also exceeded the benchmark for entry-priced houses.
Sydney and Canberra were the worst affected, with repayments for entry-priced houses consuming 57.6 per cent and 46.7 per cent of income, respectively.
Brisbane and Adelaide closely followed, with 46.4 per cent and 45.9 per cent.
For entry-priced units, the situation was more encouraging.
Darwin had the most affordable units, with repayments requiring only 17 per cent of income, followed by Perth at 23.7 per cent, Canberra at 26.5 per cent, Melbourne at 27.5 per cent, and Hobart at 29.1 per cent – all well below the 30 per cent threshold.
However, borrowers in Brisbane and Sydney still faced challenges, with unit repayments taking up 34.4 per cent and 35.8 per cent of income, while Adelaide sat just above 30 per cent.
Speaking exclusively to The Adviser, Domain’s chief of research and economics Nicola Powell said Australia’s regional property market had quickly changed.
“The outlook currently for first time buyers is much better in regional locations.
“Entry homes are only just above that mortgage press threshold of 33 per cent but I think the landscape of affordability has changed vastly in regional Australia. Five years ago, it was just under 18 per cent of your income needed to cover mortgage repayments and now it's at 33 per cent.
“It's still under that for units, but largely speaking with regional markets they really do come in the form of houses.
Powell added that she expected “subtle rates of growth” in regional markets.
“What that means is, in light of wages growth and a reduction in the cash rate, those regional markets actually might have a better landscape for mortgage serviceability moving forward.”
Why is mortgage stress getting worse?
Interest rates at historically high levels have led to a mounting strain on borrowers, with inflationary pressure also having an adverse impact on consumers’ financial confidence.
Powell noted that property prices are not the only measure of housing affordability for first-home buyers.
“Mortgage serviceability is crucial, as it assesses a buyer's ability to meet loan repayments,” she said.
“The aggressive rate hikes in 2022 and 2023 took a huge toll on mortgage serviceability, while soaring property prices over the past five years have pushed household debt to new highs.”
Looking ahead, Powell told The Adviser that the recent drop in mortgage rates offered some relief.
Like several major banks, Domain is forecasting two more rate reductions from the Reserve Bank of Australia (RBA) this year.
However Powell cautioned that lower rates can also boost borrowing power, potentially pushing prices up.
“A reduction in the cost of holding debt is a good thing [for borrowers]. But the other dynamic is, what we are likely to see is that a reduction in the cash rate is likely to provide more momentum to our housing markets, and what that will do is increase property prices.
“So overall, that is going to mean that first time buyers are going to be taking on more debt to gain access to the housing market.
[Related: Brokers must adjust to growing financial strain on borrowers]
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