Why some homeowners like Meg are at risk of slipping into negative equity

Meg Girdler says she would have liked to have seen earlier intervention in the property market. (Supplied: Meg Girdler) Some who have recently bought into Australia's property market may have slipped into negative equity and owe the banks more than their homes are worth. A decline in property prices has pulled the government's recently expanded 5 per cent deposit scheme into focus. The treasurer says he is not worried about those at risk of falling into negative equity, while the prime minister used the first home buyer turnout at a recent auction to prove proposed tax changes were working. Link copiedShareShare articleMeg Girdler went all in to buy her small Sydney apartment near the peak of the market in December last year. The 46-year-old believes her house is now worth less than she paid for it and was at risk of slipping into negative equity, meaning her Marrickville home would be worth less than what she owes the bank. "I just wanted a home and some stability, so yeah, it's a bit scary," Ms Girdler said. Sydney property prices have dropped by 2.1 per cent since the November peak according to Cotality data, amid rising interest rates, high inflation and low consumer sentiment. Ms Girdler says she was lucky to get into the property market in Marrickville. (ABC News: Adriane Reardon) More recently the federal government has announced changes to negative gearing and capital gains taxes. Ms Girdler said she was happy the moves were aimed at getting first home buyers into the market, but feels new home owners like herself have been pushed into a precarious situation. "It's great that investors are being pushed out a little bit. I'm very happy about that," she said. "What I am a little cross about is the fact that nothing was done [before] this point." Ms Girdler says her home is small but she's proud to get into the market. (Supplied: Meg Girdler) While Ms Girdler did not use the government's recently expanded 5 per cent deposit scheme, the recent flatlining in property prices has pulled the program into focus. The scheme allows first home buyers to borrow up to 95 per cent of the value of a home, within price limits, and avoid costly lenders mortgage insurance through government guarantees. Buyers who take advantage of lower deposits can be at risk of falling into negative equity. (ABC News: Monish Nand) Uncertainty has been compounded with the government estimating that its tax changes will see prices grow by about 2 per cent less in the next couple of years compared to no tax changes. Buyers who take advantage of the lower deposits, where they avoid costly lenders mortgage insurance and loans are guaranteed by the government, are more vulnerable to falling into negative equity when house prices decline. Jim Chalmers says getting first home buyers into the market is a good thing. (ABC News: Matt Roberts) Treasurer Jim Chalmers said he was not worried about those who had recently purchased property and were at risk of falling into negative equity. "Well, no, because housing is long-term investment," he told the ABC on Tuesday. "I've heard that point be made in recent days, but housing is a long-term investment. "To the extent that we can get more first home buyers into the market, that's a good thing." The scheme has been used by more than 260,000 people since 2022 and government data suggests 59 per cent of participants have a deposit larger than 5 per cent. While the government has framed its tax changes as modest tweaks, make no mistake that these are significant for the property market. Only 13 loans have been taken over by the government since the scheme was first introduced in 2020. Cotality research director Tim Lawless said instances of negative equity were likely to be rare, but he said it was unclear when the property market might recover. "I think instances of negative equity are fairly scarce, but of course there are going to be individual examples where property has fallen further," Mr Lawless said. He said property market jitters are often countered by policy changes, pointing to the early months of the COVID pandemic where some thought the "sky is falling". "That simply didn't happen because interest rates dropped to 0.1 per cent and we saw a whole amount of fiscal support roll through," Mr Lawless said. Recent buyers who need to sell quickly are at risk of falling into negative equity. (ABC News: Daniel Irvine) Mr Lawless said he could not see a policy response on the horizon to combat the current decline. "The trajectory of an increase is really uncertain, given we probably won't see a lifeline thrown to property markets," he said. He said multifaceted issues outside of the latest federal budget like inflation, interest rates and consumer sentiment were likely to push down on prices for some time. Independent economist Saul Eslake said negative equity was an issue for those who did not plan on holding their homes for long. "Now, that's only a problem if

Why some homeowners like Meg are at risk of slipping into negative equity

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Why some homeowners like Meg are at risk of slipping into negative equity

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