Negative equity coming to a house near you

Borrowers who have ‘redrawn' on the equity in their home or used ‘line of credit' home loan facilities are now the most likely to be facing a negative equity situation – where they owe more than their house is worth. Up to 300,000 households will owe more than their home is worth if prices fall by 10 per cent as predicted by economists from AMP, Morgan Stanley and Australian Property Monitors. 363,000 households are now in mortgage stress according to research from Fujitsu. Professor Gavin Wood from RMIT's Housing and Urban Research Institute said contrary to marketing most redraw is not to fund luxury purchases such as holidays or a new car but to cope with personal changes such as pregnancy, separation or job loss. The Consumer Law Action Centre groups said lenders should be discouraged from promoting loans that allowed people to “use their home like an ATM”.

Source: The Age