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Home owners' drastic move after property price bombshell

Nicole Pedersen-McKinnon
·Contributor
·3-min read
Home owners think to sell as property prices slump. Source: Getty
Home owners think to sell as property prices slump. Source: Getty

Even though the first tiny falls in property prices were only confirmed yesterday, it appears that mortgage-holders are, well, panicking.

New research by comparison house mozo.com.au has revealed that hundreds of thousands of owners are still intending to apply for a repayment holiday, worried about how they’ll afford it when a holiday ends and/or intending to sell to avoid the slump they see coming.

Of most concern to them is the possibility of ending up owing more than their house is worth, what’s called negative equity. This is the big fear of more than half of the 1454 Australians mozo surveyed between April 16 and 20.

Nearly half of respondents are considering repayment holidays but, tellingly, 89 percent are worried what will happen when the holiday is over.

Why? Because one-in-four mortgage holders surveyed have recently lost their job, while one-in-five have taken a pay cut.

Why negative equity?

Of course, the other side of the negative-equity equation to how much mortgage holders owe, is what the property on which their debt is secured is worth.

And this is where the real anxiety comes in. Of those with a mortgage, more than half (56 percent) are worried about negative equity due to house price falls, with 39 percent worried about their house significantly decreasing in value.

In fact, nearly a quarter or respondents believe a significant downturn is coming and intend to sell their property.

This is quite a shocking statistic. And it’s a time-and-place thing that will hopefully steady and recede once some certainly returns to our COVID economy.

But, in particular, to the jobs market.

The government maintains, based on Treasury forecasts, that the unemployment rate should peak at 10 percent, not since the last recession was it higher, at 11.2 percent (in 1992).

But it’s important to realise that could have been much worse: the modelling shows it would have climbed to 15 per cent without JobKeeper and that $1500 per fortnight wage subsidy.

Mozo’s research comes as Federal Government figures show 1,346,000 people received Jobseeker payments in April, up from 891,000 in March and ABS figures reveal three million people have had their working hours reduced without warning.

Understandably, mozo says that three quarters are concerned about their job security – up from just a quarter at the start of the year.

“It’s clear many people are very worried about the ongoing impact Covid-19 will have on the value of their property and their capacity to meet their mortgage repayments,” says Mozo Director Kirsty Lamont.

So what can homeowners do?

As homeowners struggle to stay employed while faced with the prospect of negative equity and forced sales when mortgage holidays come to an end, there is one defensive tool at your fingertips.

The key is stopping what you owe from growing – this is the only factor really within your control.

You do that by manually paying the interest that accrues each month, if you can, throughout a repayment holiday.

That way, you only hibernate the loan amount, not see it swell at the very worst time: while prices may be falling.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.

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