Affordability at 29.6%: what Moody's warning means

A new Moody's Ratings report confirms what many first home buyers already feel in their bones: buying a home in Australia is getting harder, not easier. The national housing affordability measure reached 29.6% of household income in March 2026 - meaning the average new mortgage now consumes nearly a third of what a household takes home each month. In Sydney, that figure sits at a punishing 40.4%. With the RBA widely expected to lift the cash rate again on May 5, Moody's warns the pressure is not going away.

What the affordability numbers actually mean

Moody's measures affordability as the share of average monthly household disposable income that a new mortgage eats up. A reading of 29.6% nationally means that for every $100 a typical household brings home, approximately $30 goes straight to the mortgage - before food, transport, childcare, or anything else.

That number has been climbing steadily. In December 2025 it was 28.6%; twelve months before that it was 29.1%. The trajectory is upward, and the city-level picture is sharper still:

• Sydney: 40.4% - the least affordable capital city by a significant margin
• Brisbane: 31.7% - above the national average despite being seen as a more affordable alternative
• National average: 29.6% - up 1 percentage point in just three months

For first home buyers specifically, the situation is more acute. Moody's flagged that a high proportion of first home buyers carry loan-to-value ratios (LVR) above 80% - meaning they have borrowed more relative to their property's value than established buyers. A higher LVR means higher repayments, and often the added cost of lenders mortgage insurance on top.

Why affordability is getting worse, not better

Two forces are compressing affordability from both sides. On one side, interest rates have risen twice already in 2026, pushing the cash rate to 4.10%. On the other, property prices have not fallen enough in most markets to offset those higher borrowing costs.

The RBA is expected to add another 25 basis points on May 5, bringing the cash rate to 4.35%. Westpac's economists have gone further, forecasting two additional hikes in June and August that would take the rate to 4.85%. The cumulative effect on monthly repayments for a first home buyer is significant.

Moody's scenario analysis puts the risk in stark terms:

• If the cash rate reaches 4.6% and prices stay flat, the national affordability measure would worsen to 31.0%
• If the cash rate reaches 4.6% and prices also rise by 6%, the national measure would climb to 32.9% - roughly one in three dollars of take-home pay

The concern is not just personal budgets. Moody's noted that worsening affordability raises the risk of mortgage delinquency and default, particularly for borrowers with high LVR loans - a group that disproportionately includes first home buyers.

What this means for first home buyers

Affordability pressure does not mean buying a home is impossible - but it does mean going in with a realistic plan matters more than ever. Here is what the data suggests first home buyers may want to consider:

• Consider building in a rate buffer before committing. The assessment rate your lender uses already includes a serviceability buffer, but running your own stress test - "what if rates go to 5.5% or 6%?" - can help clarify the ceiling of what you could comfortably carry. The Interest Rate Shock Tester lets you model exactly this on any loan size.
• Your borrowing capacity has shrunk with each rate hike. Two rate rises in early 2026, and potentially more to come, mean the amount a lender will approve you for is lower than it was six months ago. Checking your current position before setting a property budget can help avoid overcommitting.
• LMI can be the hidden affordability squeeze. Buyers with a deposit below 20% pay lenders mortgage insurance on top of their repayments. In a high-rate environment, adding thousands in LMI costs to an already stretched budget compounds the pressure.
• Government schemes can reduce the burden. The Australian Government 5% Deposit Scheme allows eligible buyers to avoid LMI entirely with just a 5% deposit. The Help to Buy shared equity scheme reduces the loan size itself by up to 40%, which directly cuts monthly repayments. These schemes are not for everyone, but for buyers in the right income and price range, they can make a meaningful difference to monthly affordability.
• Perth and Adelaide still offer relative affordability. While Sydney and Melbourne show the most stress, buyers who have flexibility on location are finding better affordability ratios in other capitals. Brisbane has tightened, but outer suburban and regional markets may still offer breathing room.

The silver lining for buyers watching Sydney and Melbourne

There is one data point that cuts the other way. CoreLogic's April 2026 Home Value Index showed Sydney and Melbourne both fell by 0.6% during the month, with the national growth rate slowing to its weakest pace in nearly a year. For buyers who have been priced out or who have been watching and waiting, cooling prices in the two largest markets do not eliminate affordability pressure, but they reduce one side of the equation.

The risk is that any softening could prove short-lived. Supply remains well below the government's 1.2 million new homes target for 2029, demand from migration continues, and lower prices can quickly attract buyers back. Market timing is uncertain and the decision of when to buy should be grounded in your personal financial position, not speculation about where prices bottom out. A mortgage broker or financial adviser can help you weigh timing relative to your specific circumstances.

Run the numbers

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

• Interest Rate Shock Tester - model what your repayments look like if the cash rate rises to 4.6%, 4.85%, or higher, so you can set a borrowing limit you can actually live with
• Borrowing Power Calculator - check how much a lender will approve you for today, after the 2026 rate hikes have already been priced in
• LMI Calculator - if your deposit is below 20%, see the real cost of lenders mortgage insurance and whether schemes that waive it could save you thousands
• Scheme Comparison Tool - compare the Help to Buy, 5% Deposit Scheme, and state grants side-by-side to find the combination that reduces your affordability burden the most