Around 311,000 of mortgage holders are struggling with having little or no real equity in their homes, meaning that the current value of their homes is either equal or lower than the amount they still owe, according to a Roy Morgan report.
Although, the “State of the Nation-Spotlight on Finance Risk” report also found that generally, the value of properties in Australia subject to a mortgage were well in excess of the amount outstanding on their loan, there were some “problem areas”.
According to the survey, which conducted more than 500,000 interviews, Western Australia had the highest proportion of low to no equity with around 9.2 per cent of mortgage customers’ homes values were less than or only equal to the amount owed.
On the other hand, New South Wales had the lowest proportion (5.1 per cent) of the households with little or no equity in their home due to fast growing average home prices.
Tasmania was the second-best performer with 6.1 per cent of mortgage holders facing equity risk, followed by Victoria with 6.3 per cent, South Australia (6.7 per cent), and Queensland (7.5 per cent).
According to Roy Morgan Research industry communications director, Norman Morris, Western Australia’s high proportion was thanks to the recent slowdown in the mining sector which had previously driven an increase in housing demand.
“If house prices decline further in Western Australia and unemployment increases then more mortgage holders will be facing a tough situation,” he said.
Commenting on the situation across the country, Morris said: “With over 300,000 home borrowers having no real equity in their homes, this represents a considerable risk, particularly if home value fall or households are hit by unemployment”.
“In addition if home-loan rates rise, the problem would be likely to worsen as repayments would increase and home prices decline, with the potential to lower equity even further,” he said.
“Lower interest rates on the other hand have the potential to increase home equity through increased home values and by giving borrowers the opportunity to pay down the principle at a faster rate.”
