8% of mortgage holders have little equity in their homes

About 8% (345,000) of Australian mortgage holders through August 2017 have been identified as having little or no real equity in their homes, an increase from 7.1% twelve months ago, according to the latest findings from Roy Morgan’s Single Source Survey.

“This is based on the fact that the value of their home is only equal to or less than the amount they still owe, placing them at considerable risk if they have to sell or prices decline,” said Norman Morris, industry communications director at Roy Morgan Research.

Over the last 12 months, the number of home loan borrowers with no real equity in their homes has increased from 311,000 to 345,000.

“This represents a considerable risk, particularly if home values fall or households are hit by unemployment,” Morris said. “Other potential contributing factors to this increase in mortgage stress include borrowers maintaining debt for other purposes rather than paying off their loan and the use of interest only loans. 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.”

Aside from the ability to meet mortgage repayments, another critical factor in assessing financial risk for mortgage holders is to compare the value of their properties with the amount outstanding on their loans. This is done in order to establish the level of equity they have.

Mortgage holders in Western Australia are most at risk, as 14% (71,000) have no real equity in their homes.

“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.”

Tasmania has the lowest proportion of mortgage holders with little or no equity in their homes: Only 4.9% (4,000) of mortgage holders fall under this category. NSW is the second-best performer, with 5.6% (81,000) of mortgage holders facing equity risk. This is followed by Victoria with 6.1% (62,000), South Australia with 7.6% (26,000), and Queensland with 10.3% (89,000).