Falling House Prices Offer Little Mortgage Relief

Falling property prices are offering Australian buyers some relief at the point of purchase, but Domain’s latest analysis shows that higher borrowing costs are cancelling out most of the benefit.

Across the combined capital cities, house prices are now about 6.2% below their peak, representing an average reduction of roughly $81,000. However, estimated monthly mortgage repayments have fallen by only about $10, or 0.2%.

The reason is straightforward: while buyers may now need a smaller deposit, higher interest rates mean the cost of servicing the loan remains close to peak levels. In some cities, including Melbourne, estimated repayments are actually higher than they were when prices peaked.

For Melbourne specifically, Domain reported house prices at around $1.014 million in the September quarter, down 6.7% from their December 2025 peak. Despite that decline, affordability remains under pressure because borrowing capacity has weakened.

For buyers in Melbourne’s western growth corridor, this creates a mixed picture. Lower property prices may provide more negotiating power and reduce the size of the deposit required, but mortgage serviceability can still prevent many households from accessing finance.

Investors face the same challenge. A lower purchase price can improve entry value, but higher repayments may reduce cash flow and make rental yield more important when assessing an investment.

The key message is that cheaper homes do not automatically mean more affordable homes. Until borrowing costs ease, buyers in Melbourne’s west will need to focus just as much on repayment capacity as they do on purchase price.