From Roy Morgan Research:
In the 12 months to October 2016, the latest Roy Morgan Research data has identified 6.9% (302,000) of Australian mortgage holders as having little or no real equity in their home. This is based on the fact that the value of their home is only equal to or less than the amount they still owe, placing them at considerable risk if they have to sell or prices decline. Although this is an improvement on the same time in 2015 (345,000), it remains a major concern.
Apart from the ability to keep up with mortgage repayments (ie mortgage stress), another critical factor in assessing financial risk for mortgage holders and banks is to compare the value of their property with the amount outstanding on their loan. The purpose of this is to establish the level of equity (if any) that householders have in their home as this generally accounts for the major component of their assets.
Mortgage holders in WA and SA at increased risk
As of October 2016, 10.4% of mortgage holders in WA (54,000) had little or no equity in their home, the highest in Australia and 2.1% points higher than the same period in 2015. SA was the only other state to show a worsening result over the last 12 months, up by 1.8% points to 8.0% (27,000).
Of all the states and two largest cities included in this analysis, Sydney has the lowest proportion of mortgage holders with little or no equity in their home: just 3.9% (33,000), down 1.1% points in the last year. This improvement is due to home prices increasing faster than in most other areas of Australia and outpacing the growth in the average amount owing on mortgages. Tasmania is the second-best performer with 4.7% (5,000) of mortgage holders facing equity risk, followed by NSW with 5.1% (73,000), Victoria with 6.0% (65,000), Melbourne with 6.1% (50,000) and Queensland with 7.2% (63,000).
Mortgage gearing or risk lowest in Sydney and Melbourne
The average loan outstanding as a proportion of the average home value (the loan-to-value ratio or LVR) is an important market metric when assessing overall risk in the mortgage market.
The lowest overall mortgage gearing is in Sydney (28.9%) and Melbourne (32.4%), due mainly to the very rapid growth in average property values.
All states other than Victoria and NSW have much higher gearing levels due to negative or marginal increases in property prices. The worst performer is Queensland with a LVR of 44.0%, followed by SA and Tasmania (both on 42.3%) and WA (41.4%).
Lower-value homes face more equity risk in all states
The mortgage holders with little or no equity in their homes have much lower average house values ($457,000) compared to all mortgage holders ($688,000).
Across all states and the two major cities, the value of homes owned by mortgage holders is much higher than the value of homes owned by mortgage holders with no real equity in their home. In Sydney for example, the average value of homes with a mortgage is $1.1m, compared to the much lower average of $762,000 for mortgage holders with no real equity. In Melbourne the figures are $795,000 for the average value of a home with a mortgage, well above the $523,000 for those with no equity in their home.
