Mortgage customers fearful of negative equity

TENSE economic times have raised concerns among mortgage customers who fear they could fall into negative equity.

While prices across the country have remained fairly stable, just last month the nation’s largest bank, the Commonwealth Bank, warned they could plummet by almost a third (32 per cent), based on a “prolonged” economic slump emerging. Other forecasters expect price falls to be less than 10 per cent.

A new survey by financial comparison website Mozo, of more than 1200 mortgage customers, found the following:

• are worried about negative equity due to house price falls.

• are worried about their house significantly decreasing in value.

Negative equity occurs when a property’s value falls below the outstanding balance owed on a mortgage.

Mozo spokeswoman Kirsty Lamont said the tough economic climate had made it a worrying time for those paying off hefty home loans.

“It’s clear many people are very worried about the ongoing impact COVID-19 will have on

56 per cent 39 per cent

Home Loan Experts managing director Otto Dargan.

the value of their property, and their capacity to meet their mortgage repayments,” she said.

Ms Lamont said the stressful economic times could even force some borrowers to consider selling up to reduce their financial liabilities.

“The biggest worry people face now is being forced to sell their property below the price they paid for it, leaving them with negative equity and the prospect of losing their family home while remaining in debt to the bank,” Ms Lamont said.

Despite interest rates remaining at record low levels – many deals have a “2” in front – hundreds of thousands of borrowers have been forced to contact their bank to get a home loan holiday.

Home Loan Experts managing director Otto Dargan said negative equity was a real concern for some borrowers but he urged people to be careful before making any knee-jerk decisions.

“If you have negative equity then you can’t sell without negotiating with your lender, as you’ll still have a loan left after you sell your property, and most lenders will not allow this,” Mr Dargan said.

“It’s also harder to get back into the property market as you’ve got no deposit and you’re no longer a first-home buyer.”

Activity is picking up in real estate, with the latest CoreLogic figures showing the combined capital cities returned a preliminary auction clearance rate of more than 70 per cent.

It’s the highest level since early March, before the COVID-19 pandemic struck.

The Reserve Bank of Australia board meets tomorrow and is likely to keep the cash rate on hold at 0.25 per cent.