Getting a Home Loan in Australia if you're living overs...
29 Nov 2023
In 2022, falling Australian house prices left a lot of homeowners worried about the value of their properties. At the time, interest rates increased while house prices declined. Many turned to refinancing to get the best deal on their mortgages.
However, the declining Australian house prices proved to be a challenge for many homeowners seeking to refinance, especially for those who suddenly didn’t have as much equity as they thought they would.
So, what happens when house prices fall? In this article, we’ll walk you through the nitty gritty of falling house prices and what you can do about them.
Equity is calculated by taking the current value of your home loan, and subtracting how much you still owe on it. It’s the difference between its present-day market value and the remaining loan value. Equity goes up as property values increase and you pay more of your loan.
When property prices depreciate, your equity can go down too. If the value of the property falls lower than the amount you still owe on your home loan, this puts you in negative equity.
To put it simply, negative equity happens when your remaining loan balance is higher than the current market value of your property. Essentially, you’re paying more for something worth less.
Of course, no homeowner wants to be put in this situation. The good news is, there are ways to mitigate the effects of negative equity. Try following these tips if you find yourself in similar circumstances:
In April 2023, Westpac announced its optimistic projections for the second half of 2023 until 2024. Instead of rapidly falling prices as previously feared, the major bank believes that prices may increase. This is due to the higher construction costs and increases in migration.
Westpac also forecasts that house prices may increase in Sydney by 1% which is a far cry from last year's prediction of an 8% decrease. This trend can be seen in other cities such as Melbourne, Perth, and Brisbane. In 2024, house prices are expected to increase by 5% instead of the 2% predicted earlier.
Overall, Westpac forecasts national house prices will drop by 10% instead of the 16% previously predicted this 2023. Now, although Australian house prices aren’t falling as largely and rapidly as previously thought, there is still a decline expected until the end of the year.
A lot of homeowners want to reduce the risk of falling into negative equity. With speculated falling Australian house prices in the near future, many may start looking for ways to refinance their mortgage as early as now.
Refinancing is a serious undertaking and requires serious consideration. Every homeowner’s situation is unique. There’s no blanket answer to whether refinancing during falling house prices may be the best solution for your financial situation.
The answer is up to you and what you think is best for your financial situation. But the smart thing to do is talk with a professional about your property concerns. At loans.com.au, we can help you figure out what the best refinance options are and if they’re the right fit for you. Get in touch with us by scheduling an appointment with one of our friendly lending specialists.
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.