Falling equity in homes

by Rebecca Pike15 Oct 2018

More mortgage holders have little or no equity in their homes compared to a year ago, putting them at risk if they have to sell.

Research from Roy Morgan says the current figure of 8.9% has risen from 8% twelve months ago and could continue to rise if house prices keep falling.

The figures are based on the fact that the value of their home is only equal to or less than the amount they still owe.

Roy Morgan’s Single Source Survey is based on more than 50,000 Australians each year, including more than 10,000 owner occupier home owners.

Its findings showed that around 386,000 home owners across the country had little or no equity in their homes.

The research group establishes the level of equity to assess households’ financial positions and potential risk.

Roy Morgan said, on average, the value of properties in Australia subject to a mortgage is well in excess of the amount outstanding but there are problem areas.

The state at highest risk is WA where 16.5% (90,000) of mortgage customers’ have no real equity in their home. This is an increase of 2.5% in the last 12 months.

New South Wales is the state with the lowest proportion of home owners who have little or no equity in their homes, with only 6.1%.

Victoria is the second best performer, followed by Tasmania, Queensland, and then South Australia.

Roy Morgan said the strong performance in NSW and Victoria were down to the rapid rise in Sydney and Melbourne prices, which outpaced the amount owing on mortgages.

Norman Morris, industry communications director, Roy Morgan said, “Other potential contributing factors to this increase in mortgage stress include borrowers maintaining debt for other purposes rather than paying off their loan and the use of interest only loans.

“If home-loan rates rise, the problem would be likely to worsen as repayments would increase and house prices decline, with the potential to lower equity even further.

“The mining boom and associated increase in housing demand and house prices in WA, followed by the slowdown in the mining sector in WA, and a decrease in house prices continues to see it having the highest proportion of mortgage holders faced with little or no equity in their home.

“If house prices decline further in WA and unemployment increases then more mortgage holders will be facing a tough situation.

“Borrowers in lower-value homes continue to be among the most likely to be faced with the problem of little or no equity in their homes. Higher-value properties with a mortgage appear to be facing a much less risky position because they are likely to have had their loan longer and may have had a far larger deposit, particularly if they have traded up.”

COMMENTS

  • by Bill 17/10/2018 9:00:00 AM

    This is a cycle. When I worked in the UK in 1993 21% of home owners had negative equity.
    By 1996 values had increased to bring this into a positive. No doubt people have overpaid in the past 3 years and, negative equity, is a consequence of this.