The $20 billion interest bill hitting home buyers and the economy

A tenth of Australians’ take-home pay is now going to mortgages, with almost $20 billion paid to cover home loan interest bills in the past three months alone as signs grow the cost is forcing consumers to cut spending.

As Opposition Leader Peter Dutton accused Prime Minister Anthony Albanese of economic mismanagement that has stopped Australia getting interest rate cuts in line with other nations, Reserve Bank data showed the interest bill on owner-occupier mortgages climbed to a record $19.2 billion in the March quarter.

Australians are spending a record share of their incomes servicing mortgages.Credit: Getty Images

Over the past 12 months, interest costs have soared by 25 per cent, or $3.9 billion. Since the Reserve Bank started lifting official interest rates in early 2022, the interest repayments incurred by borrowers have climbed by $11.7 billion a quarter, or 155 per cent.

Total repayments, including interest and principal, have soared over the same period to a record $30.2 billion. Once loans to investors are considered, total repayments have increased to a record high of $43.2 billion, a jump of 61 per cent since the Reserve Bank started lifting rates.

It has driven the share of the nation’s household income, which includes renters and others without a mortgage, being used to pay off home loans to a record high of 9.9 per cent.

The proportion will grow as more low fixed-rate mortgages expire during the next 12 months, forcing people onto higher rates.

The surge in income needed to cover mortgages is weighing on the economy as households are forced to service larger repayments.

Peter King, the chief executive of the nation’s second-largest lender, Westpac, said the number of customers behind on their repayments was starting to climb, while businesses were also reporting tougher trading conditions.

“The cost of living and high interest rates remain a challenge for some customers, while many businesses are facing cost pressures and experiencing lower demand,” he said.

A string of retail companies reported to the stock exchange on Monday that customers were cutting spending.

Bathroom and plumbing products seller Reece reported flat sales revenue as renovators trimmed spending while Ampol’s benchmark profits plunged 29 per cent as the volume of fuel sold across its petrol stations slid 4.8 per cent and the average value of a basket of purchases across its shops slipped 0.6 per cent.

Reece chief executive Peter Wilson said the company faced a softer trading environment over the past year, while Ampol boss Matt Halliday also pointed to tougher economic conditions across Australia.

Separate data from the Department of Social Services shows a growing number of people on JobSeeker in a sign of the slowdown across the labour market.

At the end of July, there were almost 822,000 people on JobSeeker. The number of recipients has increased every month since falling to 754,555 last September. The number of Youth Allowance recipients has climbed by almost 23 per cent since September to 88,160.

In federal parliament, the Coalition ramped up its attacks on the government over the cost of living.

Dutton accused the government of trying to encourage more people to rent for life because home owners were “worried about interest rates and economic management”.

He said recent cuts in official interest rates in other countries, including Britain and New Zealand, were not being replicated in Australia because of the government.

“They always mismanage the economy and, ultimately, unemployment goes up. Inflation, sticky as it is at the moment, interest rates are going down in New Zealand, in Canada and in the United Kingdom, but not here, and it’s because of the Labor government’s mishandling of the economy,” he said.

Albanese accused Dutton of focusing on division rather than practical assistance to help people deal with difficult global economic times.

“We have managed to halve inflation whilst creating almost a million jobs now. More new jobs created under my government than under any previous government since Federation,” he told ABC Radio.

“And in addition to that, we’re seeing wages, real wages increase, unlike what occurred under the former government. So these are challenging times, but we’re determined to get it right.”

One of the biggest drivers of inflation over the past two years has been insurance costs, which have lifted by 41 per cent since early 2022. Suncorp revealed its net profit grew 12 per cent to $1.2 billion through 2023-24 as it managed to pass on cost increases through higher premiums.

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