According to the latest “State of the Nation-Spotlight on Finance Risk” report from Roy Morgan Research, some 311,000 mortgage holders in Australia (6.8% of the country’s total) have little to no real equity in their homes.  

“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,” noted the report. That’s an improvement from four years ago, when 333,000 mortgage holders (7.7% of the country’s total) had home values worth less than or only equal to the amount they owed.

The decline in mortgage holders with little or no real equity in their homes can be attributed to the rise in dwelling values, which has given homeowners greater equity. Additionally, lower interest rates means mortgage holders pay less to service their loans. 

There are, however, regional disparities. East coast mortgage holders are better off than west coast mortgage holders. While the proportion of mortgage holders with little or no home equity in New South Wales shrank to 5.1% in 2016 (from 7.6% in 2012), it increased in Western Australia to 9.2% in 2016 (from 8.1% in 2012). 

“NSW has the lowest proportion of mortgage holders with little or no equity in their home, with only 5.1% (73,000). This is most likely as a result of home prices increasing faster than in other states, increasing the chance that the value of borrowers’ homes will outpace the amount owing on their mortgage.”

The latest figures from Roy Morgan Research support the argument that even though the nation’s household debt is high, they do not present an immediate systematic risk to the economy. On the other hand, the report also shows that the risks are greater among lower-income borrowers, who account for the majority of mortgage holders with low equity levels. Low-income borrowers are also more at risk from other economic shocks, such as unemployment.    

Mortgage holders with little or no equity in their homes had a much lower average home value ($478,000) compared to all mortgage holders ($674,000). In New South Wales, the average value of homes with a mortgage was $843,000, compared to the lower figure of $573,000 for mortgage holders with home values less than or equal to the amount owed.

"With over 300,000 home borrowers having no real equity in their homes, this represents a considerable risk, particularly if home values fall or households are hit by unemployment," said Norman Morris, industry communications director for Roy Morgan Research. "In addition, 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".