Could Your Home Be Affordable to Buy, But Too Expensive to Insure?

When Australians calculate whether they can afford a property, the conversation usually starts with familiar numbers.

Purchase price.

Deposit.

Stamp duty.

Mortgage repayments.

Interest rate.

Council rates.

Strata fees, where applicable.

But another cost is becoming increasingly difficult to ignore:

home insurance.

The Reserve Bank of Australia's October 2026 Financial Stability Review says Australia's general insurance sector remains well capitalised and profitable, so insurers themselves are not currently considered a major financial-stability concern.

The longer-term problem is affordability.

The RBA says APRA's climate stress testing suggests the proportion of Australian households facing unaffordable home insurance could increase substantially by 2050, potentially exposing households and mortgage lenders to greater financial risk. Reserve Bank of Australia

For property buyers, that raises an important question.

Can a property satisfy your mortgage budget while still being too expensive to insure comfortably?

Increasingly, the answer could be yes.

Home Insurance Is Becoming Part of the Mortgage Conversation

A home loan is secured against a property.

That property is one of the lender's primary protections if something goes seriously wrong with the mortgage.

Insurance adds another layer of protection.

If a house is destroyed or severely damaged by an insured event, adequate building insurance can help fund rebuilding or repair rather than leaving the homeowner with a mortgage secured against a badly damaged asset.

This is why lenders commonly require appropriate building insurance before settlement.

ANZ, for example, says it needs to ensure a new property is protected with building insurance before settlement, while Westpac similarly says borrowers may need to provide evidence of building insurance before a home loan settles. ANZ

So insurance is not simply an optional household expense sitting beside the mortgage.

It can be directly connected to obtaining and maintaining housing finance.

APRA's Stress Test Shows Why Affordability Matters

Earlier this year, APRA released its Insurance Climate Vulnerability Assessment.

The exercise was conducted with Australia's five largest general insurers and assessed how insurance affordability could change through 2050 under two severe but plausible climate-related scenarios.

Importantly, APRA says these scenarios are stress tests, not forecasts.

They should not be interpreted as predictions of exactly what will happen.

But the results illustrate the potential scale of the problem. APRA

APRA estimates roughly 15% of households living in freestanding properties currently face high home-insurance affordability pressure and may therefore be without insurance.

Under the two stress-test scenarios, that proportion increases to around 25% to 26% by 2050.

That would mean approximately another one million Australian homes potentially without adequate home insurance protection. APRA

Another way to express the result:

around one in seven homes may currently be uninsured.

Under APRA's stress scenarios, that could rise to approximately one in four by 2050. APRA

Those numbers should not be treated as inevitable.

But they show why the RBA is now discussing insurance affordability as a financial-system issue rather than simply an insurance-industry issue.

What Does APRA Consider "Unaffordable"?

APRA's modelling uses an affordability threshold based on household income.

A household was considered to face insurance affordability stress when its annual home-insurance premium reached or exceeded the equivalent of four weeks of household income.

Under that definition, approximately 15% of Australian households in the model currently face high affordability pressure. APRA

This provides useful context.

A premium can be expensive without technically crossing APRA's stress threshold.

For an individual homeowner, financial pressure may therefore become noticeable much earlier.

A household simultaneously paying for:

a larger mortgage,

higher electricity bills,

groceries,

childcare,

transport,

council rates,

and increasing insurance premiums

could feel significant pressure even if insurance has not yet become technically "unaffordable" under APRA's modelling.

Why Are Insurance Costs Under Pressure?

There is no single cause.

Insurance pricing can reflect factors including:

the property's risk profile,

expected claims,

reinsurance costs,

construction and repair costs,

the amount insured,

previous claims,

government taxes and levies,

and the insurer's own pricing assumptions. Insurance Council of Australia

Climate and natural-hazard exposure can add another layer.

Flood.

Bushfire.

Cyclone.

Storm.

Each property has a different risk profile depending on its location and construction.

And those risks can affect premiums differently.

Rebuilding Costs Matter More Than Many Buyers Realise

Insurance is not simply about the market value of the home.

It is also about what rebuilding would cost.

That cost has increased sharply.

Insurance Council of Australia analysis published in September says building costs rose around 30% in the five years to March 2026, compared with approximately 24% growth in CPI over the same period. Insurance Council of Australia

That matters because insurers need to consider what it could cost to repair or replace damaged buildings.

Higher labour costs.

More expensive materials.

Higher freight costs.

Construction shortages after major disasters.

All of those pressures can ultimately influence insurance premiums.

So even if a property's market value is flat or falling, the cost of rebuilding it can still rise.

Falling House Prices Do Not Necessarily Mean Falling Insurance Costs

This creates an interesting disconnect.

Imagine a property declines from $900,000 to $830,000 during a housing downturn.

A buyer might think:

"The house is cheaper now, so ownership should also be cheaper."

But insurance premiums do not necessarily follow market prices down.

The underlying rebuilding cost might still be rising.

Weather risk may be unchanged or increasing.

Taxes and levies may still apply.

The insurer's expected claims costs may be higher.

So the property could become cheaper to purchase while simultaneously becoming more expensive to insure.

That is why true housing affordability requires looking beyond the sale price.

Insurance Affordability Can Become a Credit-Risk Issue

The RBA's concern is straightforward.

If home insurance becomes unaffordable, some households may:

cancel policies,

reduce the level of cover,

or remain inadequately insured.

That increases the possibility that a natural disaster produces a large uninsured financial loss.

For a mortgage lender, that matters because the damaged property is the asset securing the loan.

APRA explicitly says unaffordable insurance may reduce the number of mortgage borrowers able to meet lender insurance requirements, with potential spillovers into the financial system and broader economy. APRA

This is why insurance affordability is increasingly connected to mortgage-credit quality.

Imagine a Mortgage on an Uninsured Property

Consider a simplified example.

Property value: $800,000

Mortgage balance: $600,000

The homeowner experiences a major uninsured event that causes $300,000 of property damage.

The mortgage does not disappear.

The homeowner still owes the lender.

But the asset securing that mortgage may now be significantly impaired.

If the household does not have sufficient savings to repair the property, both the borrower and the lender face a more complicated financial situation.

Insurance is designed to reduce this type of risk.

That is why underinsurance and non-insurance matter beyond the annual premium.

The Cheapest Property May Not Have the Lowest Ownership Cost

Imagine two similar homes.

Property A:

Purchase price: $750,000
Insurance: $1,800 per year

Property B:

Purchase price: $720,000
Insurance: $5,000 per year

Property B costs $30,000 less upfront.

But its annual insurance expense is $3,200 higher.

Over ten years, before allowing for premium changes or the time value of money, that difference totals $32,000.

The cheaper property may therefore not be cheaper to own.

This is why buyers should increasingly consider insurance quotes before becoming emotionally committed to a property.

Insurance Should Be Investigated Before You Buy

Home buyers commonly investigate:

borrowing capacity,

deposit requirements,

building inspections,

pest inspections,

contract terms,

and property valuations.

Insurance deserves a place on that list.

Before purchasing, consider obtaining an indicative insurance quote for the specific address.

Do not assume premiums will be similar simply because two properties are in the same suburb.

Property characteristics can matter.

So can the precise location.

Two houses separated by a relatively short distance may have materially different risk profiles.

Location Can Have a Major Effect on Insurance

Westpac notes that a property's location and rebuilding cost can influence insurance premiums, particularly for properties in higher-risk areas. Westpac

The APRA modelling also found substantial geographic differences.

Regional and rural areas were particularly exposed.

APRA estimates the insurance protection gap could exceed 40% in rural areas under both of its stress scenarios by 2050. APRA

This does not mean every rural property will become difficult to insure.

Nor does it mean metropolitan properties are automatically safe from affordability pressure.

It means insurance risk can be highly location-specific.

Climate Risk Is Increasingly a Property-Finance Consideration

Historically, many buyers might have viewed climate exposure primarily as a lifestyle or insurance question.

Today it increasingly intersects with finance.

A property exposed to greater natural-hazard risk could potentially experience:

higher insurance premiums,

reduced insurance availability,

higher maintenance or mitigation costs,

greater uncertainty around future property demand,

and more complicated lending considerations.

That does not automatically make the property unsuitable.

But it means the mortgage conversation should include more than interest rates.

The RBA Says Insurers Themselves Remain Strong

There is an important distinction here.

Australia is not currently facing an insurance-sector solvency crisis.

The RBA says the general insurance sector remains profitable and well capitalised, with capital ratios well above APRA's prescribed requirements. Reserve Bank of Australia

The risk is therefore not primarily:

"Will insurers survive?"

The longer-term question is:

"Will households continue to be able to afford sufficient insurance?"

That is a very different problem.

Insurance Can Become Unaffordable Even if Insurers Remain Profitable

Those two conditions are not contradictory.

An insurance company can remain financially strong while charging premiums that some customers struggle to afford.

In fact, appropriately pricing risk is part of maintaining insurer resilience.

If expected claims increase, insurers may need higher premiums.

But if premiums rise faster than household incomes, fewer people may purchase adequate cover.

That produces what regulators describe as the insurance protection gap.

So there can be a financially healthy insurance sector alongside financially stressed policyholders.

APRA Says the Protection Gap Could Widen Significantly

APRA estimates around 1.4 million Australian households currently face high insurance-affordability pressure under its modelling.

That represents around 15% of the homes included in the assessment.

Under its stress scenarios, the figure could increase to approximately 25% by 2050.

That is roughly another one million households without adequate protection. APRA

APRA estimates that would represent around 40,000 additional households per year, on average, losing insurance protection over the next 25 years.

Again, this is scenario analysis.

Not a forecast.

But it provides a useful indication of the potential scale.

Extreme Weather Is Only Part of the Story

Climate-related physical risks are important, but they are not the only reason insurance could become less affordable.

APRA's analysis found different factors dominate under its two scenarios.

Under the higher physical-risk scenario, greater weather-related losses drive premiums higher.

Under the delayed-transition scenario, elevated construction costs and weaker income growth play a larger role.

In other words, insurance affordability depends on both sides of the household equation:

How much does insurance cost?

And how much income does the household have available to pay for it? APRA

Weather-Related Losses Could Increase Substantially

Under APRA's higher physical-risk stress scenario, expected annual weather-related losses rise from less than $7 billion in 2024 to more than $16 billion by 2050. APRA

If insurers expect greater claims losses, that can place upward pressure on premiums.

The effect is unlikely to be evenly distributed.

Properties facing greater flood, bushfire, cyclone or storm exposure could experience significantly different outcomes from lower-risk properties.

This reinforces why buyers need property-specific information.

Government Taxes Can Also Affect Insurance Affordability

Insurance premiums can also include taxes, duties and levies.

The Insurance Council of Australia says government charges can add between roughly 20% and 40% to premiums depending on the state or territory and insurance type.

Stamp duty alone can add around 10% to insurance premiums. Insurance Council of Australia

NSW has an additional issue through the Emergency Services Levy.

The Insurance Council says the levy can add around 18% to a typical home-insurance premium in NSW and substantially more to some commercial property policies. Insurance Council of Australia

This is particularly relevant to LNO Mortgages clients across Sydney and the Hills District.

Insurance affordability can therefore reflect:

natural-hazard risk,

rebuilding costs,

insurer pricing,

and government charges.

Insurance Is Also Becoming Important for Commercial Property

The RBA's October Financial Stability Review says insurance costs for businesses, including commercial properties, have also risen strongly. Reserve Bank of Australia

That matters for:

commercial property investors,

business owners,

SMSF property investors,

and borrowers financing premises.

A commercial property may appear affordable based on:

purchase price,

rental income,

deposit,

and loan repayments.

But insurance can materially alter operating expenses.

That can affect investment returns and business cash flow.

Property Investors Need to Think About Insurance Differently

An investor may have additional considerations beyond a homeowner.

Building insurance.

Landlord insurance.

Loss-of-rent provisions.

Liability cover.

Strata insurance where applicable.

These costs influence the property's net return.

When borrowing costs and insurance costs rise at the same time, the investment's cash flow can change substantially.

That means the purchase price alone cannot determine whether an investment "stacks up."

Strata Properties Are Different

Apartment and townhouse buyers also need to understand where responsibility for building insurance sits.

A strata scheme may arrange insurance for the building itself.

But owners can still have their own insurance needs.

And strata insurance premiums can influence owners-corporation levies.

So buying an apartment does not necessarily remove insurance from the affordability equation.

It may simply appear through a different part of the budget.

Insurance Costs Can Affect Borrowing Decisions Indirectly

When buyers calculate what mortgage they can afford, recurring ownership costs matter.

A household might technically qualify for a larger loan.

But if the chosen property carries substantial annual expenses, borrowing the maximum may leave very little financial buffer.

Those costs could include:

insurance,

rates,

strata,

maintenance,

utilities,

and repairs.

This is one reason maximum borrowing capacity and comfortable affordability should not be treated as the same thing.

A Mortgage Pre-Approval Does Not Tell You What Insurance Will Cost

Pre-approval can help establish an approximate purchasing budget.

But it generally does not tell you whether one particular address will carry unusually high insurance costs.

That assessment often comes later.

This creates a potential trap.

A buyer receives pre-approval.

Finds a property within budget.

Falls in love with it.

Then discovers that insurance is significantly more expensive than expected.

Getting an indicative insurance quote earlier can help avoid that surprise.

Do Not Assume Last Year's Premium Will Be Next Year's Premium

Insurance premiums can change.

Weather events.

Reinsurance markets.

Repair costs.

Risk modelling.

Taxes.

Claims history.

All can influence future pricing.

So a buyer should not necessarily build a 30-year mortgage strategy around today's insurance premium remaining unchanged.

The same principle applies to:

interest rates,

council rates,

and maintenance expenses.

Home ownership needs financial buffers.

Underinsurance Creates a Different Risk

Some households respond to rising premiums by reducing cover.

That may lower the annual bill.

But inadequate cover can create another problem.

If rebuilding costs substantially exceed the sum insured, the household may face a large financial gap after a serious event.

APRA's stress testing did not directly model underinsurance because of its complexity, but it acknowledged that worsening affordability could also contribute to underinsurance. APRA

So affordability stress can produce more than just completely uninsured properties.

It can also potentially reduce the quality of protection.

What Should Buyers Check Before Making an Offer?

Insurance should increasingly be treated as part of property due diligence.

Before committing, consider checking:

the indicative building-insurance premium,

whether flood is included,

bushfire or cyclone exposure where relevant,

the policy excess,

the estimated rebuilding cost,

what exclusions apply,

and whether the property can be insured on terms you consider affordable.

The exact insurance product should be discussed with an appropriately qualified insurer or insurance adviser.

The mortgage broker's role is different.

But the finance conversation should recognise that insurance affects the overall ownership cost.

The Cheapest Interest Rate Does Not Solve an Expensive Property Risk

A borrower might spend significant time comparing mortgage rates to save 0.20%.

That is sensible.

But imagine the chosen property's annual insurance premium is several thousand dollars higher than an alternative property.

The insurance difference could outweigh part of the mortgage-rate saving.

This is why home affordability increasingly needs a broader calculation.

Mortgage cost.

Insurance cost.

Property-specific risk.

All three matter.

The Real Cost of Ownership Is Bigger Than the Mortgage

A more complete affordability calculation looks like:

mortgage repayments

plus insurance

plus council rates

plus strata where relevant

plus utilities

plus maintenance

plus repairs

plus other property-specific costs.

A buyer who looks only at the monthly mortgage repayment may underestimate the cost of owning the property.

As insurance affordability deteriorates in some areas, that difference becomes more important.

Could Insurance Eventually Affect Property Demand?

Potentially.

If a particular area becomes significantly more expensive to insure, buyers may begin factoring that into purchasing decisions.

Some buyers may demand lower property prices to compensate for higher annual ownership costs.

Others may choose different suburbs.

Investors may reconsider returns.

Lenders may pay closer attention to risk.

The exact impact will depend heavily on local market conditions and insurance availability.

But insurance increasingly forms part of a property's economic attractiveness.

Banks Are Also Increasingly Interested in Climate Risk

The connection between property insurance and banking risk is not new.

APRA's earlier Banking Climate Vulnerability Assessment examined how climate-related factors could influence bank credit risk.

Its later Insurance Climate Vulnerability Assessment extends that analysis by examining how insurance protection itself could change. APRA

The logic is straightforward.

Banks lend against properties.

Insurance protects those properties.

If protection becomes unaffordable or unavailable, lenders become more exposed to losses following severe events.

So insurance markets and mortgage markets are increasingly interconnected.

This Does Not Mean Buyers Should Avoid High-Risk Areas Automatically

Every property decision involves trade-offs.

Location.

Price.

Lifestyle.

Employment.

Schools.

Transport.

Property type.

Future plans.

Insurance risk is another factor to consider.

The objective is not to create fear around particular regions.

It is to avoid discovering a major recurring cost only after buying.

Information before settlement creates choices.

The Bigger Lesson: Housing Affordability Has Changed

For years, Australian housing-affordability conversations have concentrated primarily on:

property prices,

deposit requirements,

interest rates,

and borrowing capacity.

Those remain critical.

But insurance is increasingly becoming part of the equation.

A home can potentially be:

affordable to purchase,

within borrowing capacity,

and manageable from a mortgage perspective

while still carrying insurance costs that significantly strain the household budget.

That is why buyers need to assess the full cost of ownership.

Could Your Home Be Affordable to Buy, But Too Expensive to Insure?

APRA's answer is not that this will happen to every Australian homeowner.

Its modelling is deliberately based on severe but plausible stress scenarios.

But the direction of risk deserves attention.

Today, APRA estimates roughly one in seven Australian houses may already lack home-insurance protection.

Under its scenarios, that could reach approximately one in four by 2050. APRA

The RBA is now explicitly identifying increasing underinsurance as a potential longer-term threat to financial resilience. Reserve Bank of Australia

For buyers, homeowners and investors, the practical message is much simpler.

Do not assess a property using the mortgage alone.

Understand what it costs to protect the asset too.

Buying a Property? Look Beyond the Loan Repayment

Loan & Own Mortgages helps home buyers, investors, self-employed borrowers and business owners understand lending options across residential and commercial finance. LNO Mortgages can compare options from a panel of more than 50 lenders, subject to eligibility.

When reviewing a property purchase, consider the complete ownership picture, including borrowing capacity, deposit, repayments, LVR and ongoing property costs such as insurance.

A mortgage might fit your budget today.

The better question is whether the complete cost of owning the property fits too.

Data sources

Reserve Bank of Australia, October 2026 Financial Stability Review: Australia's general insurance sector remains profitable and well capitalised, but worsening insurance affordability and underinsurance could create longer-term risks for households and mortgage lenders. Reserve Bank of Australia

APRA Insurance Climate Vulnerability Assessment, March 2026: Around 15% of Australian households in freestanding properties currently face high insurance-affordability pressure under APRA's modelling. Under its stress scenarios, the protection gap could rise to around 25% to 26% by 2050. APRA

APRA stress-test summary: Around one in seven Australian houses are estimated to be uninsured today, potentially increasing to around one in four under the modelled scenarios by 2050. Rural areas could face protection gaps above 40%. APRA

Insurance Council of Australia, September 2026: Australian building costs increased around 30% in the five years to March 2026, compared with approximately 24% CPI growth, contributing to pressure on rebuilding costs and insurance affordability. Insurance Council of Australia

ANZ and Westpac borrower guidance: Building insurance is commonly required as part of the mortgage-settlement process, depending on the loan and property circumstances. ANZ

This article provides general information only and does not constitute personal financial, credit, insurance, investment, tax or legal advice. Insurance availability, premiums, coverage, property risk, borrowing capacity and lender requirements depend on individual circumstances and can change over time.