A growing proportion of Australian mortgage holders have a house with equal or less value than the amount they owe and are at considerable risk if property prices slide, or if they should need to sell, according to research from Roy Morgan.
While statistics showed a slight improvement from 24 months ago, 6.9 per cent of mortgage holders remain high risk and could also suffer from lack of ability to keep up to date with payments, known as mortgage stress.
“This represents a considerable risk to these households and their banks, particularly if home values fall or households are hit by unemployment,” Roy Morgan industry communications director, Norman Morris said.
“The problem is likely to worsen as repayments increase and home values may decline, which has the potential to lower equity levels even further.”
Mortgage holders in Western Australia and South Australia showed the most risk, with a recorded 2.1 per cent increase on 2015 figures. Mortgage gearing and risk remained lowest in Australia’s most expensive cities, Sydney and Melbourne, which Morris said could be attributed to rapid population growth.
“Mortgage holders in those areas have high levels of equity but are still dependent on a strong labour market and low interest rates to maintain their strong position,” he said.
“Higher-value properties with a mortgage appear to be in a much less risky position because they are likely to have had their loan longer and may have had a far larger deposit.”
The belief that the rapid growth in house prices post the Global Financial Crisis (GFC) would continue would no longer be reliable, Morris said.
“The rapid growth in house prices must soon come to an end and when it does, so will the growth in home equity.”
“It is clear that borrowers in lower-value homes are among the most likely to be faced with the problem of low equity levels.”
