Mining slowdown sparks negative equity risk

In the 12 months to October 2016, the latest Roy Morgan Research data has identified 6.9 per cent (302,000) of Australian mortgage holders as having little or no real equity in their home.

The report said 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.

As of October 2016, 10.4 per cent (54,000) of mortgage holders in WA had little or no equity in their home, the highest in Australia and 2.1 percentage points higher than the same period in 2015.

South Australia was the only other state to show a worsening result over the last 12 months, up by 1.8 per cent points to 8.0 per cent (27,000).

Roy Morgan Research industry communications director Norman Morris said the 302,000 borrowers who have no real equity in their homes represent a considerable risk to both themselves and their banks, particularly if home values fall or households are hit by unemployment.

“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,” Mr Morris said.

“The slowdown in WA’s mining sector is seeing the highest proportion of mortgage holders faced with little or no equity in their homes, and this position has deteriorated further over the last twelve months.”

Of all the states and two largest cities included in the analysis, Sydney has the lowest proportion of mortgage holders with little or no equity in their home – just 3.9 per cent (33,000), down 1.1 percentage points in the last year.

“This improvement is due to home prices increasing faster than in most other areas of Australia and outpacing the growth in the average amount owing on mortgages,” Mr Morris said.

Tasmania is the second-best performer with 4.7 per cent (5,000) of mortgage holders facing equity risk, followed by NSW with 5.1 per cent (73,000), Victoria with 6.0 per cent (65,000), Melbourne with 6.1 per cent (50,000) and Queensland with 7.2 per cent (63,000).

Mr Morris explained that there are a number of potential reasons some borrowers are not gaining equity in their homes despite a generally strong property market.

“These include being in areas with declining values, apartments in Sydney and Melbourne losing value, borrowing more than the real value of the property, falling behind in mortgage payments, and increased borrowing for renovations that haven’t been reflected in increased property values,” he said.

[Related: Outlook for property sector optimistic for 2017]