What is affordability?

There is no single perfect measure, so a few simple ratios are used together. Housing affordability is rent or mortgage payments divided by gross household income, and a figure around 30% of gross income is the benchmark most often cited. The debt service ratio is total monthly debt repayments divided by gross monthly income, and the essential-cost share is monthly essentials (rent, utilities, groceries, insurance, transport) divided by net monthly income.

Ratios are easy to calculate and compare, but they miss household make-up, irregular income and savings. Debt-to-income has a narrower meaning in Australian lending: APRA and lenders measure total debt against gross annual income and express it as a multiple, such as six times income, with each lender setting its own limits.

For consumer credit, responsible lending obligations under the National Consumer Credit Protection Act require a lender to assess whether a loan is unsuitable for the borrower. Those obligations do not cover credit provided predominantly for business purposes, where the lender assesses affordability under its own credit policy instead. Where a consumer believes a lender did not assess affordability properly, the escalation paths are the lender's complaints process and then the Australian Financial Complaints Authority (AFCA).

The repayment a household can comfortably sustain matters more than the maximum a lender will approve. Lenders and financial counsellors add the proposed repayment to existing debts, work out the debt service ratio, and test whether essentials and minimum repayments would still be covered if hours were cut or rates rose. Comparing terms across providers, or borrowing a smaller amount, can bring the repayment inside a budget.

Energy, water, telecommunications and financial firms generally must have hardship policies, and their hardship teams can arrange payment plans, deferred payments or other support once a customer makes contact. State and territory concession schemes and rebates can reduce utility, transport and health bills, subject to eligibility.

Free community financial counsellors give confidential advice and can negotiate with creditors on a person's behalf. Where a dispute cannot be resolved, industry ombudsmen (telecommunications, energy) and AFCA (for credit) are the next step. Moneysmart and the National Debt Helpline set out that support and list free financial counsellors.