Mortgage prison looms with Sydney prices set to drop nearly 200k

This is based on analysis of NAB’s property price forecasts, from which RateCity concluded that the average Sydney house price could fall to $1,108,415 by December of next year, while prices in Melbourne may potentially wind down to $780,764.

RateCity added to this point, stating that individuals who purchased a median-priced Sydney home in June 2021 with a 5 per cent deposit could owe the bank 5 per cent more than their home is worth by the end of next year, should NAB’s forecasts come to fruition.

If the initial deposit was 20 per cent, the individual would own just 11 per cent of the property by the end of next year, rendering them in mortgage prison unless they pay mortgage insurance in the event that they opt to refinance — which is predicted to hit record levels in the coming months. 

Similarly, in Melbourne, anyone who purchased a median-priced home in the Victorian capital in June 2021 with a 5 per cent deposit could owe the bank 10 per cent more than the property’s value by December 2023. 

Sally Tindall, RateCity’s research director, expects the Australian property market to be “in for a bumpy ride over the next year if NAB’s new forecasts are realised”. 

“Every time the RBA hikes rates, the maximum amount people can borrow from the bank takes a hit, and with a number of rate hikes potentially waiting in the wings, the drops in property prices are likely to continue,” she said. 

Ms Tindall outlined that as the budgets of some buyers continually shrink, others are playing the long game in the hope that cheaper deals reveal themselves in the future. She added that “falling property prices are typically good news for would-be first home buyers looking for a window in”. 

“However, with interest rates still on the rise, it’s not going to be a walk in the park. They’ll be paying more in interest for the money they borrow against what is an uncertain backdrop,” she said. 

NAB executive for home ownership, Andy Kerr, mirrored this, explaining how “in a rising rate environment, where people are uncertain on when the rising rate cycle will end, Australians are more cautious on what they can afford”. 

Ms Tindall concluded that “anyone who bought at the peak should put the property news pages in the bottom drawer and focus on paying down their debt”.