Housing Affordability Hits Record Low 2026

Australia's housing affordability has deteriorated to some of its most severe levels on record. With the RBA delivering a third consecutive rate hike this week to 4.35 per cent, the national affordability reading has reached 29.6 per cent of household income - meaning the average Australian household now devotes nearly three dollars in every ten to housing costs. In Sydney, that figure stands at 40.4 per cent. For first home buyers, these numbers deserve an honest look - and so do the genuine options still available to cut through the complexity.

What the affordability readings mean

An affordability reading measures the share of gross household income required to service a median-priced mortgage at current rates. The national reading of 29.6 per cent in March 2026 is up from 28.6 per cent in December 2025, with the May rate hike pushing that figure higher still. Industry analysis from Moody's and BDO both flag further deterioration as the base case if rates remain elevated through the second half of 2026.

Across the capitals, the picture is uneven:

• Sydney: 40.4 per cent - the worst reading of any capital city, and a level where many households are spending more than two-fifths of gross income before food, transport, or utilities
• Brisbane: 31.7 per cent - still under the national average, though rising alongside continued price growth
• Perth, Adelaide: both below the national average, supported by relatively lower median prices, though growth is rapid
• Melbourne: slightly below Sydney but still among the least affordable markets relative to local incomes

These readings apply to existing mortgage holders. For first home buyers who are simultaneously paying rent and building a deposit, the practical challenge is more acute - every dollar that goes to rent is a dollar not going to savings.

How three rate hikes compound the pressure

The February, March, and May 2026 rate increases have together added roughly 0.75 percentage points to the cash rate since the start of the year, fully reversing the three cuts delivered in 2025. On a $600,000 variable-rate mortgage, the cumulative monthly repayment increase from those three hikes is approximately $270 to $290 per month compared to January 2026.

The secondary impact for first home buyers is on borrowing capacity. Lenders apply a serviceability buffer of around 3 percentage points above the loan rate when assessing what you can borrow. As variable rates approach 7 per cent, the assessment rate moves toward 10 per cent, which meaningfully compresses the loan size a given income can support. Each 0.25 percentage point increase in the cash rate typically reduces maximum borrowing capacity by around $15,000 to $25,000 depending on income and loan structure. Three hikes means the maximum most buyers can borrow has fallen by roughly $50,000 to $75,000 since February - a significant shift for anyone trying to reach a target purchase price.

Use the Interest Rate Shock Tester to model what your repayments look like at the current rate, and what a further 0.25 or 0.50 percentage point increase would add if the Westpac forecast of two more hikes proves correct.

The rental market adds another layer

The affordability challenge does not exist in isolation from the rental market. National rental vacancy rates fell to just 0.6 per cent in early 2026, with median house rents reaching approximately $700 per week in some capital city markets. For first home buyers saving a deposit while renting, each rent increase directly delays the savings milestone they need to enter the market.

CommBank data from March 2026 shows the average first home buyer is now 33 years old, purchasing with an average loan of around $480,000 and a deposit of around 16 per cent. More than 60 per cent are buying with someone else - a spouse, partner, sibling, or friend - which reflects how the deposit and borrowing equation has evolved in the current environment.

What first home buyers can do in this environment

Difficult conditions reward preparation. There are concrete steps that make a real difference regardless of which city you are targeting.

• Know your current borrowing capacity, not last year's estimate. A calculation from 12 months ago may overstate what a lender will approve today by a meaningful amount. Running an updated estimate takes minutes and anchors your search to realistic numbers.
• Stack every grant and scheme you may be eligible for. The right combination of state and federal support can reduce the effective upfront cost of purchase by tens of thousands of dollars. The 5 per cent Deposit Scheme now has unlimited places and no income cap. Help to Buy still has more than 7,700 of its annual 10,000 places available. Queensland's $30,000 First Home Owner Grant drops to $15,000 on July 1 - buyers who sign contracts for new homes before June 30 can claim the higher amount. State stamp duty concessions for eligible first home buyers can add further savings.
• Consider where the market is working for you. Sydney and Melbourne property values have been falling - CoreLogic's April data shows both cities recording declines of 0.6 per cent, the first outright monthly falls in some time. For buyers with flexibility on location, a softening market in the major capitals partially offsets higher borrowing costs. Buyers targeting Brisbane, Adelaide, or Perth face still-rising prices but relatively better affordability ratios.
• Maximise your deposit savings rate while rates are elevated. Higher cash rates mean better returns on savings accounts and term deposits. If you are building a deposit, the same interest rate environment that raises your eventual loan cost is also working in your favour on the savings side. Reviewing your savings account rate against the best available offers is worth doing this week.
• Work with a broker or lender who knows the current landscape. Scheme eligibility, lender policy differences, and the right loan structure for your income and deposit level are all areas where professional guidance specific to your situation adds real value.

Run the numbers

Use these tools to understand how the current affordability environment affects your specific position:

• Borrowing Power Calculator - get a current estimate of your maximum loan size based on today's rates and your income
• Grant Stacker - see every state and federal grant you may be eligible for and how they combine to reduce what you need at settlement
• Stamp Duty Calculator - calculate the exact stamp duty you would pay in your state, including any first home buyer concessions that apply
• Interest Rate Shock Tester - model your monthly repayments at 4.35 per cent and stress test against further increases to understand what your budget can sustain