Almost 7% of Australian mortgage holders have little or no real equity in their homes, according to a new report by Roy Morgan Research.

In the 12 months to October, 6.9% of Aussie mortgage holders (or 302,000 households) had little or no real equity in their dwellings. This assessment is based on the fact that the value of their homes is only equal to or less than the amount they still owe. This places these mortgage holders at considerable risk if they have to sell their homes or if prices decrease.

Although this is an improvement from the same period in 2015 (when 345,000 mortgage holders had little or no real equity in their homes), it remains a major concern.

“This represents a considerable risk to these households and their banks, particularly if home values fall or households are hit by unemployment,” said Norman Morris, industry communications director at Roy Morgan Research. “With some early signs that home loan rates are rising, 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 with little or no equity in their homes have much lower average house values ($457,000) compared to other mortgage holders ($688,000). 

Most of the weaker home values can be found in Western Australia and South Australia. As of October 2016, 10.4% of mortgage holders in WA (54,000 households) had little or no equity in their homes, the highest percentage in Australia and 2.1% higher than the same period in 2015. SA was the only other state to show a worsening result over the last 12 months, up by 1.8% to 8% (27,000 households).

Sydney has the lowest proportion of mortgage holders with little or no equity in their homes (3.9%), down 1.1% from the same period in 2015. This improvement is due to home prices increasing faster than in most other regions of Australia.

“Due to the strong growth in house prices in Sydney and Melbourne over recent years, 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,” Morris said.

Although the majority of Aussie mortgage holders have considerable equity in their homes, there is always speculation that the rapid growth in house prices must come to an end at some point – and when it does, it will halt the growth in home equity.

Roy Morgan Research derived data for the study from more than 100,000 interviews over the last two years, including more than 10,000 owner-occupied mortgage holders.