The year on year increase in the number of home borrowers with no real equity in their homes is a considerable risk to the economy if house values fall or unemployment rises, according to Roy Morgan research.
The Roy Morgan Single Source Survey found eight per cent of mortgage holders, amounting to around 345,000 people, have been identified based on the fact that the value of their house is equal to or less than money owed on it.
Commenting on the findings, Roy Morgan industry communications director, Norman Morris said the figures, which were up 7.1 per cent from 12 months ago posed a risk.
“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.
“Although the majority of Australians with a mortgage have considerable equity in their home, speculation is emerging that the growth in house prices must soon come to an end and when it does, so will the growth in home equity.”
The average value of a home with little or no equity was $501,000, compared to all mortgage holders ($761,000). Tasmania had the lowest proportion of mortgage holders with little to no equity, ahead of New South Wales and Victoria, whilst the state with the highest risk (14 per cent) is Western Australia.
“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,” Morris said.
“If house prices decline further in WA and unemployment increases then more mortgage holders will be facing a tough situation.”
The survey found the main determinant for a risk assessment on equity positioning was the comparison of the value of the property with the outstanding amount on a home loan.
