Worrying number of home owners have no equity

Currently 6.9 per cent of mortgage holders have little or no equity, which works out to 302,000 people, a decrease on the 2015 figure of 345,000 but still alarmingly high.

“Despite some improvement over the last 12 months, there are still over 300,000 home borrowers who have no real equity in their homes. This represents a considerable risk to these households 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,” said Norman Morris, industry communications director, Roy Morgan Research.

Western Australia and South Australia are two of the hardest-hit states: 10.4 per cent of mortgage holders in WA have little to no equity in their homes, which is the highest percentage in Australia and an increase of 2.1 percentage points on 2015 figures.

SA was the only other state to see the figures worsen over 12 months. From 2015 to 2016 there was an increase of 1.8 percentage points to 8.0 per cent, a total of 27,000 home owners.

Tasmania was the best performer with 4.7 per cent of mortgage holders (5,000), 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).

Unsurprisingly due to the growing house prices, Sydney was the city with the lowest proportion of mortgage holders with little or no equity, 3.9 per cent (33,000), a reduction of 1.1 percentage points on the previous year.

The risk in the mortgage department is partly calculated using loan-to-value ratio (LVR). The lowest figures were found in Sydney, which had an average LVR of 28.9 per cent.

Melbourne also saw a low LVR, 32.4 per cent. Again, this can be chalked up to booming prices in these areas.

Worrying LVR figures were found in Queensland, with 44 per cent, SA and Tasmania, each with 42.3 per cent and WA, with 41.4 per cent.

All states showed that the homes where owners had more equity were on average of a higher price point than those without, or with low equity; in Sydney the median house price of a mortgage owner with no equity was $762,000, compared to a $1.1 million average for a mortgage owner with equity in their property.

“It is clear that borrowers in lower-value homes are among the most likely to be faced with the problem of low equity levels. Higher-value properties with a mortgage appear to be in a much less risky position because they are likely to have had their loan longer and may have had a far larger deposit, particularly if they traded up,” said Mr Morris.