The 30% Mortgage Stress Threshold

Key takeaways

• The common threshold is housing costs above 30% of gross household income.
• The 30/40 rule limits it to lower-income households, which is more meaningful.
• Gross income ignores tax, so the real share of take-home pay is much higher.
• 421,725 Australian households were in mortgage stress across 80 postcodes at June 2026.

How is the measure constructed?

Take annual housing costs - mortgage repayments, or rent - and divide by gross household income. Above 30%, the household is conventionally classed as being in housing stress.

The 30/40 refinement addresses the obvious objection. A household earning $400,000 spending 35% on housing has a great deal of income left; a household earning $70,000 spending 35% does not. So the 30/40 rule counts only households in the bottom 40% of the income distribution, where the threshold actually signals hardship.

Different researchers use different definitions - some use after-tax income, some include all housing costs including rates and insurance, some use a repayment-at-current-rates basis and others a stressed rate. That is why published counts of households in mortgage stress differ substantially between sources.

How do you test your own position?

Illustrative: a household with $150,000 gross income and a $600,000 loan over 30 years.

Note how narrow the band is. This household crosses the conventional threshold on a rate move of well under one percentage point - which is why aggregate stress counts move so sharply when rates change.

Also note what gross income hides. At a 30% marginal tax rate, 30% of gross income is well over 40% of take-home pay, and that is the number that competes with groceries.

What are the measure's limits?

It is a screening tool, and treating it as a diagnosis produces both false positives and false negatives.

• It ignores everything else. Two households at 32% with identical incomes are in different positions if one has $80,000 in offset and the other has none.
• It ignores the trajectory. A household two years into a mortgage with rising income is not comparable to one whose income has plateaued.
• It ignores household composition. Dependants, medical costs and childcare all change what is affordable.
• Gross income overstates capacity because tax is deducted first.

A better personal test is the one lenders use: can you meet the repayment at a rate three percentage points higher while still covering essential costs? If not, act now - build the offset, request a reprice, or restructure. Restructuring before arrears is far easier than after, and lenders have hardship obligations they can only act on if you contact them.

Frequently asked questions

What is mortgage stress?

Conventionally, housing costs exceeding 30% of gross household income. The 30/40 refinement counts only households in the lower 40% of the income distribution, where the threshold more reliably indicates hardship.

How many Australian households are in mortgage stress?

Reported figures vary by definition and source. As at June 2026, 421,725 households across 80 postcodes were counted as being in mortgage stress. Counts differ between researchers because the definitions differ.

Is 30% of gross income the right threshold?

It is a useful screen but a crude one. It ignores savings buffers, household composition and the difference between gross and take-home income. A better personal test is whether you could meet repayments at a rate three percentage points higher.

What should I do if I am above the threshold?

Test whether you could absorb a further rate rise. If not, act before arrears: build offset balances, request a reprice from your lender, review the loan structure, and contact the hardship team early - options narrow considerably once payments are missed.

Related reading

• Mortgage Stress Hits 421,725 Households: Is Your Postcode on the List?
• Stress-Testing Your Own Budget at +3%
• Redundancy: How Long Your Buffer Lasts

Sources

• Housing Occupancy and Costs — Australian Bureau of Statistics
• Financial Stability Review - household finances — Reserve Bank of Australia