Experts Reassure First-Home Buyers: Negative Equity Fears Overblown
Despite warnings from Liberal politicians about the risk of negative equity for first-home buyers, experts say price falls are concentrated in the top end of the market, and lower-end property values remain relatively stable.
Concerns that first-home buyers with small deposits may face negative equity have been downplayed by experts, who point to data showing that price declines in Sydney and Melbourne are largely limited to the most expensive properties.
Liberal MPs and senators, including Andrew Hastie, have warned that young Australians with high loans are at risk of owing more than their homes are worth. However, research indicates the risk is limited.
Price Drops Concentrated at the Top
Gerard Burg, head of research at Cotality, noted that first-home buyers typically purchase in the bottom 25% of the market. In the three months to May, the cheapest dwelling values in Sydney rose 0.4%, while in Melbourne they fell only 0.2% — much stronger than the upper end.
Burg acknowledged that some recent buyers, especially those using the government's 5% deposit scheme who bought near the $1.5 million cap in Sydney, could face negative equity if a downturn similar to past ones occurs. But he stressed that it only becomes a problem if forced to sell.
Low Unemployment Reduces Risk
Angus Moore, senior economist at REA Group, added that price falls have so far been in expensive suburbs, not typical areas for first-home buyers. While tax changes could affect investor demand, low unemployment and low arrears rates mean most buyers can handle short-term negative equity if they keep their jobs.
