6.8% or 311,000 mortgage holders in Australia have been identified as having little or no equity in their homes they own, according to a new report from Roy Morgan Research.
Roy Morgan says it is based on the fact that the value of their home is equal to or less than the amount they still owe – creating the risk of a capital loss or worse if they are forced to sell or prices decline even more.
That's according to Roy Morgan's latest State of the Nation-Spotlight on Financial Risk report. The data has been gathered from more than half a million interviews conducted over the last decade. The research company says that assessing the value of a homeowner's house against what they owe on their loan is a critical factor in assessing financial risk – along with the ability to keep up with the mortgage and interest repayments.
Not surprisingly, homeowners in Australia's resource states of Western Australia and Queensland were most at risk as the chart below shows.
The single biggest factor affecting the results is the growth in property values over the past few years. Homes in some parts of Western Australia and Queensland have had massive falls in value, while those in states like NSW and Victoria have seen average house prices rise.
Interestingly, it seems that those homeowners with the biggest risk of having zero or less equity are those with lower value homes. As an example, Western Australia has an average home value of $670,000 across mortgage holders, but those with zero or less than equity have a value of $452,000.
The results might be a wake-up call for Australia's banks including the big four of Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
National Australia Bank did raise its provisioning for bad and doubtful debts in its third quarter results already, so at least it appears to be aware of the problem.
Foolish takeaway
The concern is that should interest rates rise, home values fall or there is a rise in unemployment, more mortgage holders could be faced with zero or negative equity in the homes. Unlike in the US though, Australians can't just hand the keys back to the bank and walk away.
