‘At risk’: Recent Australian homeowners face $110,000 being slashed from value of property

There are warnings of a stark divide growing in the property market – and one group of Aussies are “most at risk”.

Recent buyers are at risk of having at least $110,000 slashed from the value of their homes as interest rates are hiked and property prices plunge, new analysis has found.

Borrowers who purchased in the past six months are “most at risk” even if they had a 20 per cent deposit, according to the Canstar research.

It found if property prices fall by the predicted 15 per cent, buyers who snapped up their dream home just six months ago face seeing their equity shrink from an original $180,000 to just $70,000.

But if the Reserve Bank of Australia continues to slug homeowners with super-sized rate increases and property prices fall by 23 per cent, it could see recent buyers plunged into dangerous territory with the house worth $5000 less than what is owed on the loan.

Meanwhile, Aussies who purchased a home just 12 months ago wouldn’t be as harshly impacted by a 23 per cent house price drop with their property still valued at $63,000 more compared to their mortgage.

In an even bigger contrast a buyer from 10 years ago, should still have 46 per cent equity or $314,000 compared to their home loan after the bigger 23 per cent price fall, even if they have not made additional payments to get ahead.

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Aussies who purchased in the past six months are most at risk. Picture: Gaye Gerard

‘Extreme pressure’

There’s nothing like interest rate increases and falling property prices to highlight the divide between borrowers who have been in the market for a long time and more recent buyers, said Canstar’s finance expert Steve Mickenbecker.

“This is a tale of two borrowers, those who have been in the market for several years and recent entrants with bigger loans and repayments, no time to build a buffer and skinny equity if house prices fall as expected,” he told news.com.au.

“Having come through 10 years of property appreciation, homeowners have built up impressive equity in their property, to the point where the median housebuyer should own around two-thirds of their house. A price fall might wipe out some of the extraordinary rises of the past two years, but is little more than a speed bump.

“Buyers in the six months leading up to the property peak are facing the pressure of negative or near negative equity in their property, having bought at the top, and will be feeling extreme pressure.

“Negative equity is a worrying concept, but doesn’t mean that borrowers will end up out in the streets. Banks don’t sell people up because the property market moved, but negative equity loans will make them twitchy if the borrower falls into arrear with repayments.”

Canstar’s Steve Mickenbecker said those who bought in the last six months are at risk of going into negative equity.

Rising interest rates

It’s not just falling house prices that show the stark difference between recent buyers and those who purchased a decade ago.

A buyer who bought at the median price 10 years ago will have repayments of $1936 a month, compared to the buyer six months ago paying $3623 a month, yet they are both repaying an 80 per cent loan for a median priced house of $929,000, Canstar found.

Even those who purchased 12 months ago are paying $400 less on their home loans compared to more recent buyers.

Most borrowers will be able to find a loan with a lower interest rate and repayments than the one they have and banks will fall over themselves to refinance borrowers with more than 30 per cent equity, Mr Mickenbecker said.

“But if your equity is approaching zero and repayments on your loan are starting to stress your income, you will probably be a hostage in your current loan,” he warned.

New homeowners are also being slugged with bigger mortgage repayments. Picture: Supplied

‘Bigger challenges’

To keep the bank happy, borrowers always have to maintain their repayments on time every time, he added.

“It’s just that the penalty for falling behind can be faster coming and more final for buyers with no equity and no record to fall back on,” he said.

“Maintaining repayments will also be a bigger challenge for recent buyers, who face repayments almost double those of 10-year veterans, and bigger increases should rates continue to go up.

“If borrowers do find themselves unable to meet repayments, it is no time to bury their head in the sand. Talk to your lender, who will have hardship policies and measures in place. Go to them with your proposed solution and timing, not just the problem.

“The best thing most recent borrowers can do is to keep up with the repayments and hang in to protect their small toehold in the property market. These things go in cycles and this phase too will pass, so that hopefully the next time we face this scenario, they will be the secure veterans.”

Talk to your bank if you are struggling. Picture: Gaye Gerard

How much can house prices drop?

Some experts have predicted that house prices could drop as much as 30 per cent.

However, others have not forecast such a dramatic change.

Proptrack predicted house prices could plunge by as much as 5 per cent in the next five months and are expected to be down by 15 per cent by the end of next year.

Commonwealth Bank has also backed the prediction estimating house prices will drop by 15 per cent over the next 18 months across Australia and by 18 per cent in the next two years in Sydney and Melbourne.