A new report from the Australian Housing and Urban Research Institute has highlighted the risk to older property investors of entering negative equity, noting that a 10 per cent house price decline would wipe out 14 per cent of mortgage equity for an investor approaching retirement.
The research, conducted for the Australian Housing and Urban Research Institute by Curtin University and RMIT, found that the number of property owners aged 55 to 64 still paying off their home had doubled from 1987 to 2015.
As a result, property investors in this age group with a mortgage were more at risk of losing some or all of their investment, with investment risk to mortgagors aged 55 to 64 rising almost 50 per cent over the 18-year period.
While a 10 per cent house price decline would have wiped out 11 per cent of home equity for investors aged 55 to 64 in 1987, the same decline in today’s market would erase 14 per cent of equity on average for this investor group.
Such a decline would also see 17.5 per cent of 55 to 64-year-old investors owning less than 40 per cent of the equity in their home, the report said.
However, the report maintained that negative equity among older investors was “reassuringly low”, although it had climbed around 1 per cent a year since 1987.
“While the share of older mortgagors with limited equity was only 3 per cent in 1987, this has grown to 14 per cent [in 2015],” the report said.
“These indicators suggest that while older mortgagors are carrying more mortgage debt than before, most have remained in positive equity territory, and the number that have negative equity (i.e. owe more on their dwelling than it is worth) is negligible.”
But the report warned that the number edging closer to this predicament was increasing, as mortgage debt had soared over the 18-year period at the same speed as house prices had risen.