Home owners who bought in Sydney or Melbourne in the past few months are facing a heightened risk of falling into negative equity, especially if they bought their properties with a low-deposit mortgage, experts say.
The warning comes after house price drops accelerated in Sydney and Melbourne in the past three months, with median values falling by 1.3 per cent each, data from CoreLogic shows.
House prices in more than half of all Sydney suburbs are now lower than they were three months ago, or a total of 307 house markets racking up quarterly losses. Nearly six in 10 unit markets in the city also notched up a quarterly decline.
In Melbourne, two-thirds of all house markets analysed, or a total of 255 suburbs, posted a drop in prices, while more than half of all unit markets in the city have fallen in value in the past three months.
AMP Capital chief economist Shane Oliver said people who fall into a negative equity position could find themselves stuck for a long time.
“If interest rates do come back down again, property prices could rise, but I think there is a possibility that we’ve seen the bottom of interest rates, so they won’t go back to the previous lows,” he said.
“Therefore the upswing we may start to see in 2024 won’t be particularly strong, and therefore negative equity may continue for a while longer.”
Negative equity occurs when a home owner owes more to the bank than their property is worth, usually triggered by a sharp decline in values.
Homeowners who fall into negative equity will often find it difficult to refinance or upgrade their property.
“Those people who bought in our two major capital cities of Melbourne and Sydney in the last few months are the most likely to be vulnerable right now, especially if they have purchased with a 90 per cent to 95 per cent home loan, which many buyers have done,” said Margaret Lomas, founder of Destiny Financial Solutions.
So capital city buyers who are heavily mortgaged will be the ones who suffer the most.”
However, being in negative equity does not automatically mean home owners will lose their homes, said Sally Tindall, director of research at Rate City.
“Borrowers who keep up their monthly repayments and aren’t looking to move or refinance might not even realise their equity has gone backwards,” she said.
