New mortgage products in Australia are reshaping borrowing limits, raising concerns about financial stability and long-term affordability. A growing number of lenders are offering 40-year terms and extended interest-only loans, prompting warnings of increased household debt and property inflation.
Mortgage Terms Extended as Affordability Plunges to Historic Lows
Australia’s housing market reached its most unaffordable point on record by the end of 2024, according to data from CoreLogic. The national dwelling value to income ratio climbed to 8.0, its highest level ever, while the share of income required to service a median new mortgage peaked at 50.5%.
In response to this affordability crisis, several Australian lenders have introduced 40-year mortgage terms, aiming to reduce monthly repayments and expand borrowing capacity. Two of these products are specifically targeted at first-time buyers.
A survey by Finder revealed that nearly one-third of respondents would consider a 40-year loan if it eased monthly financial pressure.
The trend is underpinned by new analysis from Canstar, which found that individuals on a median full-time salary could borrow up to $24,000 more on a 40-year mortgage than on a standard 30-year term.
For dual-income households, this figure rises to $48,000. According to IFM Investors’ Alex Joiner, these longer terms significantly increase borrowing capacity, fuelling concerns that housing prices may continue to rise despite interest rate changes by the Reserve Bank of Australia, which lowered rates by 0.25% in February.
New Interest-Only Products Add to Concerns Over Debt Burden
In a further shift, financial services firm AMP has launched a new 10-year interest-only mortgage that does not require a mid-term reassessment. The product is available to a broad range of borrowers, including retirees, investors, and owner-occupiers, and is marketed as a tool for improving cashflow stability and enabling long-term financial planning.
According to AMP, the loan offers “a decade of interest-only repayments,” and is designed to support both older Australians looking to unlock home equity and younger buyers seeking alternative paths into the market, such as rent-vesting. The lender also highlights administrative simplicity for borrowers with non-traditional income sources.
Critics argue that such products further inflate demand, increase household debt and reduce financial resilience. The combination of extended loan terms, interest-only periods, and government-backed schemes—such as the Labor government’s policy allowing first-time buyers to enter the market with a 5% deposit and no student debt assessment—may lead to a significant rise in home values.
Economists warn that these measures could create a new speculative bubble, driven not by improved supply or wage growth, but by increased leverage and credit availability in a historically overvalued market.
