Australia

Sydney homeowners using small deposits risk borrowing more from the bank than their assets are worth

Those who bought a house in Sydney last year with a small deposit are now at risk of taking on more debt than their home is worth as interest rates rise and the cost of living soars.

House prices across Sydney could fall as much as 18% by next Christmas, according to PropTrack’s recent modeling.

Those who bought with a deposit of less than 20% during market peaks could find themselves in a negative capital position, owing the bank more than the value of their assets.

Some homebuyers may still owe money to the bank after selling the property.


This includes first-time homebuyers who purchased with a 5% security deposit through the First Mortgage Deposit Scheme (FHLDS).

more: Sydney property prices fall 18%

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Negative equity means the mortgage provider may remain in debt after the property is sold, so it affects those who need to sell their homes during market downturns.

This comes after huge numbers of homebuyers reported feeling nervous about making mortgage payments as financial markets factor in a 3% cash rate by the end of the year.

Asian woman stress with bills and bills credit card calculating money on sofa at home at night.

Two-thirds of homebuyers are worried about making mortgage payments.


In April, about two-thirds of homebuyers were worried about making their mortgage payments before interest rates rose, according to data from comparison site Finder.

Four months after the survey, the cash rate was raised by 175 basis points and the average floating rate soared to 4.18%.

Last month, the percentage of Australian homeowners struggling to pay their mortgages increased to 24% from 20% the previous month.

Lendi data also shows an increase in the number of homebuyers buying with small deposits.

Housing loan

Property prices in Sydney skyrocketed during the pandemic.


Since August last year, the number of loans representing more than 90% of the asset value has increased from less than 10% to 14%.

Economic Research’s Cameron Kusher said anyone who bought in Sydney last year would be at risk of a negative equity if prices fell 18%, but those who had less than 10% on deposit. said to be particularly vulnerable.

“Modern buyers really stretched themselves to get into the market and borrowed with very small deposits. They are vulnerable in that their property will be worth less than the amount they bought ” he said.

“I think the mortgage delinquency rate will be pretty low, but there are definitely people who could have problems and end up having to sell their homes.”

Cameron Kusher, Executive Manager, Economic Research, PropTrack


Lendi Group CEO David Hyman said last year’s surge in Sydney property prices made it difficult for homebuyers to buy with the traditional 20% deposit.

He notes that first-time homebuyers who purchase through FHLDS are exposed to negative equity risk and may find it difficult to refinance to lower interest rates, but they may not be able to afford to hold onto properties during a downturn. Some said they would be protected.

“Current RBA data suggest that around 2.5% of households may be at risk of negative capital due to falling prices, slightly higher than the pre-corona situation,” Hyman said. ‘ said.

“People who find their equity capital declining or negative will find it difficult to refinance with another lender.”


According to a survey of homeowners by Finder in July, almost one in five Australian mortgage holders has refinanced their mortgage in the past six months, with the same percentage expected to refinance in the next six months. We are planning to refinance within a month.

Finder mortgage expert Richard Witten said those buying homes on small deposits are typically first-time homebuyers and are most vulnerable in expensive markets such as Sydney.

“Given how much property prices have risen in the last few years, saving a 20% security deposit is not realistic for many first-time buyers.

“These borrowers will be hit harder by higher interest rates and lower property prices.”

Buyers who purchase with small deposits are the most vulnerable.


He said borrowers facing negative stocks would need to “play the long game.”

“Focus on repayment and wait for asset values ​​to rise,” he said.

“It’s very difficult in times of high inflation, but it always helps to find ways to spend less and save more.”

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Sydney homeowners using small deposits risk borrowing more from the bank than their assets are worth

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