Mortgage Affordability

IBISWorld forecasts the proportion of household income remaining after making mortgage repayments to climb by 0.9 percentage points in 2024-25 to 63.7%. This indicates that mortgages are expected to become slightly more affordable for households over 2024-25, as a lower proportion of their income is allocated to repayments. This comes about as interest rates are anticipated to slightly fall in 2024-25 as the Reserve Bank of Australia (RBA) seeks to alleviate concerns of an economic slowdown despite remaining inflationary pressures. The associated dip in the cost of borrowing is expected to allow for slightly more mortgage affordability as repayment rates fall. Despite this, with the cash rate still high compared to previous lows over the past five years, mortgage affordability still remains out of reach for many.

Interest rates are typically the primary driver of mortgage affordability and are responsible for much of the change in mortgage repayments. Before the pandemic, global economic growth concerns like slower growth, below-target inflation and rising unemployment had driven the cash rate to historic lows – reaching its lowest rate in November 2020 and staying low until May 2022. This low cash rate translated into lower mortgage interest rates for households, making it less costly to borrow money. The subdued economic activity caused by the COVID-19 pandemic led the RBA to extend the length of time the cash rate would remain low as it sought to stimulate the economy and encourage lending. At the same time, competition between lenders also reduced interest rates. This has helped partially offset the rise in household mortgage repayments over the period.