House Poor in Australia: How to Avoid Financial Strain in 2025

‘House poor’ isn’t just a catchy phrase—it’s an increasingly common reality for many Australians in 2025. With property prices surging across capital cities, mortgage repayments climbing due to higher interest rates, and living costs refusing to budge, more households are feeling the pinch. But what does it really mean to be house poor, and how can you avoid or escape this financial trap?

What Does It Mean to Be House Poor?

Being ‘house poor’ refers to a situation where a disproportionate amount of your income goes toward housing expenses—primarily mortgage repayments, but also rates, insurance, and maintenance. As a result, there’s little left for essentials, savings, or enjoying life. In Australia, financial advisors often flag a mortgage stress threshold of 30%: if more than a third of your pre-tax income is eaten up by home loan costs, you’re at risk.

• 2025 snapshot: According to CoreLogic and ABS data, median home prices in Sydney and Melbourne have reached new highs, while the RBA’s cash rate remains at its highest level since 2012. This double whammy has pushed the proportion of ‘house poor’ Australians to an estimated 28%, up from 22% just two years ago.

• Real-world example: The Smith family in Brisbane bought a $900,000 home in 2023 with a variable-rate mortgage. With rates now at 5.25%, their monthly repayments have ballooned, forcing cutbacks on holidays, dining out, and even kids’ extracurriculars.

Why More Aussies Are House Poor in 2025

Several factors are fueling the house poor phenomenon this year:

• Interest Rate Hikes: The Reserve Bank’s tightening cycle since 2022 has pushed average variable mortgage rates above 5%, adding hundreds to monthly repayments for many.

• Stagnant Wages: While the cost of living has surged, wage growth has lagged, leaving families squeezed.

• Record-High Property Prices: Despite predictions of a slowdown, demand and low housing supply have kept prices stubbornly high in most metro markets.

• Policy Shifts: The federal government’s 2025 ‘Help to Buy’ shared equity scheme has eased entry for some, but also contributed to higher demand and price pressure in certain segments.

Households are often forced to stretch their borrowing capacity to get a foothold in the market. Lenders’ mortgage stress tests (now at a minimum 3% buffer) mean buyers must prove they can withstand further rate rises, but as living costs outpace income, even these measures aren’t always enough.

How to Avoid or Escape Being House Poor

If you’re feeling the squeeze, you’re not alone. But there are practical steps you can take:

• Review and Refinance: With more lenders offering competitive fixed and split loans in 2025, shopping around could yield savings. Some non-bank lenders are offering rates below the big four’s variable loans—worth investigating if you’re out of your fixed term.

• Rethink Priorities: Consider if that extra bedroom or premium suburb is worth the financial strain. Downsizing or moving to a growth corridor could free up cash and lower stress.

• Budget Ruthlessly: Track every dollar. Many house-poor households underestimate the impact of ‘lifestyle creep’—small discretionary expenses that add up.

• Tap Into Support: Federal and state governments have expanded hardship programs and mortgage relief in 2025, particularly for first-home buyers and single parents.

• Increase Income Streams: From renting out a spare room to side gigs, extra cash flow can make a big difference.

Looking Ahead: Will the Tide Turn?

Economists are divided on whether relief is on the horizon. Some predict rate cuts late in 2025 if inflation slows, which could ease mortgage stress. Others warn that supply constraints and high migration will keep property prices and rents elevated. Either way, the trend of households overcommitting on housing is unlikely to disappear overnight.

For now, the key is vigilance. Regularly reassess your budget, stay informed about policy changes, and don’t be afraid to make tough choices if your home is putting the rest of your life on hold.