When the Reserve Bank of Australia (RBA) initiated interest rate cuts in 2025, the aim was to alleviate financial pressure on prospective homeowners. Lower borrowing costs were expected to stimulate the housing market, particularly for first-time buyers. Yet, according to Domain’s First-home Buyer Report 2026, the anticipated relief has not materialized, leaving many Australians grappling with persistent mortgage stress.
The report highlights a troubling trend across every capital city. In Sydney, a couple earning an average income now allocates a staggering 61.8% of their household income to initial mortgage repayments. Brisbane follows closely with 50%, while Perth and Adelaide require 42% and 44% of income, respectively. These figures significantly exceed the 30% threshold, beyond which households are deemed to experience mortgage stress.
As inflation begins to rise again, the RBA has shifted back to raising interest rates. This change poses a new challenge for first-time buyers who have already endured the previous cycle of rate hikes from 2022 to 2023. With the financial landscape shifting once more, these individuals find themselves in a precarious position, potentially facing worsening conditions in 2026.
The ongoing crisis prompts deeper questions about the efficacy of interest rates as the primary tool for addressing housing affordability. Over the last five years, entry-level house prices in Australia have surged by 68%, while wages have only increased by 21% and inflation by 23%. This disparity has widened the gap between earnings and the savings required for home ownership by nearly 50 percentage points, a structural imbalance that no interest rate cut could remedy.
The findings also reveal a concerning trend in housing affordability across various cities. Once considered the most affordable capital, Adelaide has now become the fourth least accessible. Perth has followed a similar trajectory, while Brisbane’s unit market, historically seen as a more affordable entry point, has now surpassed Sydney in terms of the length of time required to save for a unit deposit.
This crisis, which initially stemmed from conditions in Sydney, has evolved into a nationwide issue. As housing affordability continues to decline across Australia, it will require solutions of commensurate scale to effectively address the problem. The urgency for comprehensive strategies to tackle this crisis has never been greater, emphasizing the need for a reevaluation of the role that interest rates play in the broader context of housing policy.
