First homebuyers face higher mortgage risks despite government incentives
Housing affordability in Australia is expected to deteriorate further through the rest of 2026, as rising interest rates and persistently high property prices squeeze new homebuyers, according to a sector analysis published by Moody’s Ratings.
The report, released 1 April, warned that worsening affordability raises the risk of delinquency and default for new mortgages held within residential mortgage-backed securities (RMBS) portfolios – a development the ratings agency characterised as a credit negative.
Sydney leads affordability crisis
Moody’s measures housing affordability as the share of average monthly household disposable income that homebuyers must allocate toward repayments on a typical new mortgage. By that measure, Australia’s national affordability reading stood at 29.6% in March 2026, up from 28.6% in December 2025 and 29.1% in March 2025.
Sydney recorded the worst affordability reading among all capital cities at 40.4%, followed by Brisbane at 31.7%. Adelaide (28.0%), Perth (25.4%), Melbourne (23.9%), Hobart (23.3%), and Darwin (20.9%) recorded lower readings.
RBA rate rises fuel concern
The Reserve Bank of Australia (RBA) raised its policy cash rate by 25 basis points in both February and March 2026, bringing the rate to 4.1%, as it moves to contain resurgent inflation driven in part by a global energy crisis. Moody’s noted that the RBA had signalled further increases may be necessary to return inflation to its target range.
According to the report, if the cash rate reaches 4.6% and housing prices remain unchanged, the national affordability measure would worsen to 31.0%. Should housing prices also rise by 6%, the measure would climb further to 32.9%.
Supply squeeze keeps prices elevated
Despite the rate environment, Moody’s said it expects housing prices to remain broadly elevated through 2026. The agency cited sustained population growth from migration, combined with tight housing supply, as factors keeping demand strong. ABS data cited in the report showed new dwelling construction across major states has remained low relative to population growth, with high construction costs limiting new builds.
Moody’s added that the Melbourne property market is likely to continue to lag other major cities, even as the broader national market holds firm.
First homebuyers add to risk
The report also highlighted a rise in first homebuyer activity following the Australian government’s decision to widen eligibility for its 5% deposit scheme by removing income limits and increasing property price caps. First homebuyer loans rose in the December 2025 quarter, according to ABS data cited by Moody’s.
Moody’s cautioned that a high proportion of first homebuyers carry mortgages with loan-to-value ratios (LTV) exceeding 80%, leaving them exposed to significantly higher repayments compared with borrowers with lower LTV loans.
Wages lag housing costs
Although wage growth in Australia has been strong over the past year – broadly in line with or exceeding inflation – Moody’s said resurgent inflation is eroding real wage gains. The agency noted that housing price growth outpaced income growth on average across Australia and most capital cities in the two-and-a-half years to December 2025. Moody’s said it does not expect income growth to improve affordability in 2026.
