- Property price drops of up to 14.5% are forecast across the five major capital cities across 2026 and 2027, according to ANZ
- This follows the RBA’s decision to hold interest rates, which in turn has led to applications dropping by 15% to 20% with three of the Big Four banks
- A recent Finder survey found that 46% of Aussie homeowners could no longer qualify for a mortgage refinance
Australian homeowners struggling to keep up with mortgage payments have been dealt a major blow, with sliding property prices set to lock them out of refinance options and keep them stuck with their current lender.
Amid a market environment with high interest rates and soaring property values, mortgage applications have fallen significantly. Westpac revealed a drop in applications by 20% since May, while Commonwealth Bank saw a 15% drop over the same period.
With the decrease in demand a key factor, the value of property has started to go backwards, with ANZ forecasting drops as great as 14.5% in Sydney, 12.8% in Melbourne, 9.8% in Adelaide, 7.9% in Brisbane and 5.2% in Perth over the next two years.
So, just how much will property owners be impacted with prices heading in the wrong direction and cost-of-living pressures continuing to choke household budgets?
Low deposits, recent purchases exposed to negative equity risk
Negative equity in a property means that the value of your home has dipped below your outstanding mortgage balance.
For example, if your home loan balance sat at $525,000 and your home’s value dropped to $500,000, you’d have $25,000 in negative equity.
This issue rears its ugly head for those looking to sell their property or refinance their home loan, with the above scenario requiring the seller or refinancer to cover the shortfall out of pocket if they went through with it.
For refinancers in this position especially, this can lock you into a mortgage prison, where you’re stuck with your current agreement without the ability to escape for the sake of a better rate or lower repayments.
It’s worth noting that the number of people at imminent risk of negative equity is relatively small, with the RBA reporting that less than 1% are currently in this position, with the number growing to around 5% should values drop by 20%.
While it’s a real issue that can impact a range of households, most homeowners will be in the clear, according to Savvy Mortgage Broker Daniel Carter.
“The most likely scenario that’ll lead to negative equity is a single buyer or couple who bought at the peak of the market with a deposit of 5% or less,” he explained.
“With so little equity built up in the property, there’s a very real possibility that your home has dipped in value below what you currently owe, which can temporarily block you from refinancing.
“However, for those who bought even a couple of years ago and/or put up a larger deposit of 20% or more, negative equity is far less likely, as your home’s value will likely still be at or above what you paid and your existing equity will act as a nice buffer.”
Cost-of-living crunch locking Aussies in mortgage prison
As mentioned, falling property prices will hurt some homeowners looking to refinance their current mortgage, but general cost-of-living pressures have made it virtually impossible for many to get approved for a switch.
A recent survey by Finder revealed that almost half of all mortgage holders (46%) were no longer able to refinance due to not meeting their new loan’s criteria relating to income, expenses or equity.
22% reported that a lack of sufficient income or steep outgoings were standing between them and refinancing, while 14% cited the fact that their equity is too low.
“While we can realistically expect housing prices to rebound over the next year or two to remove the negative equity concern for homeowners, the same can’t be said for the cost of living,” Mr Carter explained.
“The serviceability buffer is a real issue that we’ve seen plenty of applicants run into, with both younger and older mortgage holders finding themselves in mortgage prison.
“With younger clients, a common scenario is typically that they got into their first home a few years ago but have now had a child or two and only one parent is currently working.
“Having dependants immediately reduces your borrowing capacity, and that’s before the lifestyle creep that can sometimes come into it, such as a new car or upgrade for the family.
“The people who are most likely to have fallen into this trap are also those who bought or refinanced in 2020 or 2021 and locked in super-low fixed rates.
“As those rates expire, they’ll automatically roll over to a much higher variable rate, so it’s a real double whammy for them despite all the equity they’ve often built up.”
