A majority of Australian home owners are in a worse mortgage situation than they were 12 months ago, new data has revealed.
According to RateCity, national median house prices have continued to fall, which means a home owner’s mortgage now makes up a greater percentage of their home’s value.
RateCity's chief executive Damian Smith said it's a real concern for borrowers and investors with properties located in suburbs where real estate values have plummeted.
"Some borrowers looking to refinance this year could be in for a nasty shock when they discover that a reduction in their home's value has turned back the clock on their mortgage situation,” he said.
"In fact, some home owners and investors who borrowed 95 per cent or more of a property’s value – particularly those in some of the hardest hit suburbs of Adelaide, south-east Queensland and Perth – may now have mortgages that outweigh their home's value.”
Median house prices around the country fell 3.5 per cent in the year to September 2011 compared to the previous year, according to Australian Property Monitors data.
Brisbane house prices fell most, with the median property value down 6.7 per cent in the period, followed by Perth, down 5.7 per cent and Adelaide, down 5.1 per cent.
"This may be less of an issue for many Canberra, Melbourne and Sydney home owners. But it could be a real issue if you have an investment property or live in South-East Queensland, for instance,” Mr Smith said.
"For example, in September last year the average Brisbane house cost around $460,000. At the time a borrower with a 5 per cent deposit ($23,000) may have taken on a loan of $437,000. That borrower might now find that their home is valued at just $429,000.”
After one year, this borrower has only repaid around $6,000 of principal (assuming a 7 per cent interest rate and a 25-year loan term) – so their mortgage is over $430,000 and therefore more than 100 per cent of the value of their home, according to Mr Smith.
"Given this percentage LVR they would struggle to find a new lender willing to take their business, and so couldn’t easily refinance to get a lower interest rate.”