Negative Equity: 386,000 Home Owners Owe the Bank More Than the Value of Their Home

By October 30, 2018Buying, Investing, Selling


Almost 9 per cent of mortgage holders are now underwater with their home loans, as falling house prices continue to push them into negative equity.

These homeowners have seen their mortgages barely budge as their homes decline in value, leaving them with a loan bigger than the value of their property.

Experts are now saying that it’s first-home buyers who struggled to get a toehold on the housing ladder at the peak of the market who are now most likely to find themselves with negative equity. It’s disproportionally hurting first-home buyers who can least afford it

An estimated 386,000 home borrowers now owe more than the value of their home, and the number is expected to grow as the housing downturn continues to bite.

The proportion of borrowers in Sydney and Melbourne with negative equity was slightly up in New South Wales, 6.1 per cent and Victoria at 6.8 per cent, where house prices have retreated after several years of increases.

First-home buyers generally buy cheaper houses and probably have higher LVRs because they haven’t got equity that an upgrader or downsizer might have. It’s really not that surprising with falling house prices that more people are in negative equity.

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

So, What’s so bad about negative equity?

Negative equity traps homeowners in loans that are difficult to refinance and discourages owner-occupiers from trading properties as they continue to owe money after selling. Owner-occupiers are more likely to stick it out than investors as investors have the advantage of offsetting any capital loss against capital gains.

There are a number of ways in which you can mitigate losses however this varies from case to case. If you would be interested in having a discussion about the true value of your home in the current market, feel free to get in touch anytime


Have a question about your property? Speak with James today to discuss all your real estate needs.

James Sutton

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