The old 30% rule says a household is in housing stress when it spends more than 30% of income on rent or mortgage repayments. It began as a simple affordability benchmark: if housing takes much more than one-third, there may not be enough left for the rest of a normal life.
It is still a useful warning light. But it is not a moral score, and it is not a complete budget. A household on a high income may comfortably choose to spend 35% on a home. A lower-income household can be in real hardship at 25% once childcare, medical bills, transport and debt repayments are included.
What matters is the money left after housing—and whether it covers your essentials without relying on credit.
Why 40% is the sharper danger line
At 40% of take-home pay, housing starts to crowd out almost everything else. That leaves 60% for utilities, groceries, transport, insurance, school costs, debt, healthcare, savings and unexpected bills. In a high-cost year, that can be brutally tight.
The scale of the issue is no longer small. Finder’s 2026 Home Loan Report says more than half of Australian mortgage holders spend over 30% of take-home pay on repayments, and about 1.4 million spend at least 40%. Roy Morgan reported in May 2026 that 29% of mortgage holders were at risk of mortgage stress, with extreme stress rising most sharply among lower-income borrowers.
Renters are under similar pressure. Cotality data for July 2026 put the national median weekly rent at a record $705. The REA Rental Affordability Index says affordability is the worst it has been since records began in 2008. Everybody’s Home estimates that rents across capital cities now exceed half of median take-home pay; its Sydney example is a $756 weekly unit rent, or 69% of weekly pay on a $70,000 salary.
These figures sit alongside an ABS annual CPI rise of 3.5% to July 2026, with housing costs up 5.0%. So even if your rent or repayment has not moved this month, many of the costs around it probably have.
Calculate your real housing percentage
Use take-home pay, not your salary before tax. For renters, include rent plus compulsory parking or regular strata-style charges built into the tenancy. For owners, include mortgage repayments, rates, strata levies and required home insurance. This is your practical housing cost, not just the loan repayment shown in an app.
Here is a simple example.
- Household take-home income: $2,400 a week
- Mortgage repayment: $780 a week
- Rates, strata and home insurance set aside weekly: $145
- Total housing cost: $925 a week
- $925 ÷ $2,400 = 38.5%
That household is not yet at 40%, but it is close. If the repayment rises by $70 a week, or income falls because one partner loses shifts, the ratio becomes 41.5%.
For a renter earning $1,250 after tax each week and paying $705 rent, the calculation is $705 ÷ $1,250 = 56.4% before electricity, internet or food. That is not a budgeting problem that can be solved by cancelling one streaming service.
What to do when you are over the line
First, do not wait for a missed payment. The earlier you act, the more options you usually have.
- Make a one-page survival budget. List take-home income, housing, food, power, transport, insurance, minimum debt payments and medications. Use bank transactions from the last month, not guesses. Pause “ideal” savings targets temporarily if essentials are not covered.
- Separate fixed costs from negotiable costs. You may not be able to change rent this week, but you can review mobile plans, insurance renewals, subscriptions, fuel use and grocery routines. The purpose is to find genuine room, not punish yourself.
- Contact your lender early. If mortgage repayments are becoming unmanageable, ask about hardship assistance before you fall behind. Options can include a temporary reduced payment arrangement, a repayment pause in limited circumstances, or extending the loan term. Each has trade-offs—especially more interest over time—so ask for costs in writing.
- Check whether your loan is still competitive. Typical variable mortgage rates remain around 6% or more in 2026. A lower rate can help, but do not refinance blindly: compare fees, features and the total cost, and avoid resetting a nearly finished loan to a much longer term without a plan.
- Talk to your landlord or agent with a clear proposal. If a rent rise is due, ask whether a longer lease, a different increase date or a modest staged rise is possible. It may not work, but a calm, early request is better than silence.
- Protect the basics and avoid expensive patches. Credit cards average about 20.99% interest, according to RBA data cited in 2026 reporting. Using a card or buy now, pay later to cover rent, groceries and bills can turn a housing squeeze into a debt crisis. Canstar reported roughly $10 million a day in credit-card interest charges in July.
- Get free, independent support. A financial counsellor can help you map options and negotiate with creditors. If you are in immediate trouble with rent, utilities or food, local tenancy services and community organisations may know state-based assistance that is not obvious online.
Choose a target that fits your situation
If you are at 42%, your first target may be getting to 38%, not magically reaching 30% next month. That might mean an extra shift, a pay review, a housemate, renegotiated debt payments, downsizing when a lease ends, or a refinance that genuinely lowers the repayment.
Be cautious about solutions that simply move the pressure elsewhere. Extending a $500,000 loan at 6% can lower the monthly payment, but over a 25- to 30-year loan total interest can exceed the original amount borrowed, as Moneysmart notes. Sometimes that trade-off is necessary to stay housed; it should just be a conscious choice with a later review date.
Being over 40% does not mean you have failed. It means your housing cost deserves urgent attention and a practical plan. Start with the true number, take one pressure-reducing action this week, and ask for help before the strain becomes a crisis.
This article is general information only and not personal financial advice.