After five RBA rate hikes this year and prices sliding in most capitals, a growing number of Australian homeowners now owe more on their mortgage than their property is worth. If you bought recently with a small deposit, you might be one of them.
What does negative equity mean for you, and what should you actually do about it?
What Is Negative Equity?
Negative equity happens when your home loan balance is bigger than the current value of your property.
Say you bought a unit for $600,000 with a 5% deposit. Your loan starts at $570,000. If the unit's value drops 8% to $552,000, you now owe about $18,000 more than the property would sell for. That gap is your negative equity.
It's not a debt you have to pay tomorrow. It only turns into a real loss if you sell, or if you need to refinance and a lender won't accept the numbers.
Why More Australians Are Facing It Now
Three things have come together in 2026.
Rates keep rising. The cash rate is now 4.85% after the November hike, the fifth this year. Higher rates cut buyer borrowing power, which puts downward pressure on prices.
Prices are falling in more places. The downturn that started in Sydney and Melbourne has spread. We covered this in our guide to Australia's property downturn.
Lots of people bought with small deposits. Government deposit schemes helped thousands of first home buyers get in with 5% down. That's a great way to start, but it leaves very little buffer if values dip.
Recent reports suggest thousands of first home buyers who bought near the peak are already in negative equity, and new lending has dropped sharply as the rate hikes bite.
Who Is Most at Risk?
You're more exposed if any of these apply:
You bought in the last 12 to 24 months
You put down a deposit of 10% or less
You bought a unit or apartment in an area with lots of new supply
You added LMI or other costs onto your loan, which pushed the balance higher from day one
You're on an interest-only loan, so your balance isn't going down
If you bought five or more years ago, you've probably built enough equity through price growth and repayments to absorb a fall.
How to Check Where You Stand
Don't guess. Get a rough idea of your position in a few minutes.
Find your current loan balance in your banking app
Look up recent sales of similar properties in your street or building
Use a free online estimate as a starting point, but treat it as rough
Divide your loan balance by the estimated value to get your loan to value ratio (LVR)
An LVR over 100% means negative equity. An LVR above 80% means most lenders will treat you as higher risk if you try to refinance.
A broker can order a proper lender valuation, which is often more useful than an online estimate.
If You're Not Selling, It May Not Matter Much
Here's the good news. If you can keep up repayments and you plan to stay put, negative equity is mostly a paper problem.
Property values move in cycles. Australian prices have recovered from every downturn in recent decades, although some took years. Every repayment you make also chips away at the balance. Time is usually on your side.
The real risks are being forced to sell, or getting stuck on a high rate because you can't refinance.
Where Negative Equity Bites
Negative equity becomes a problem in three situations.
Selling. If you sell for less than you owe, you have to cover the shortfall from savings or another loan. Lenders won't release the mortgage until it's paid.
Refinancing. Most new lenders want your LVR at or below 80% to 90%. Above that, you may need to pay LMI again, or you may not be approved at all. This is how people end up in mortgage prison.
Accessing equity. You won't be able to draw on your home to renovate, invest or consolidate other debts.
What You Can Do Right Now
You have more options than you might think.
Keep making repayments. Missing payments damages your credit file and limits future options. If cash is tight, call your lender's hardship team before you fall behind.
Ask your current lender for a better rate. You don't need to refinance to get a lower rate. Existing lenders can reprice your loan without a new valuation.
Use an offset account. Parking savings in an offset reduces the interest you pay and builds a buffer you can still access.
Make small extra repayments if you can. Even $50 a week helps close the gap faster.
Avoid selling in a hurry. If a job change or life event means you need to move, look at renting the property out before selling at a loss.
Don't add more debt. Hold off on car loans or credit card spending while your equity is thin.
Thinking of Buying? Protect Yourself
If you're about to buy, a falling market can work in your favour. Prices are softer and there's less competition. Just build in some protection.
Aim for the biggest deposit you can comfortably manage
Keep a cash buffer of at least three to six months of repayments
Plan to hold for at least five to seven years
Get a broker to stress test your repayments at higher rates
Ready to Check Your Equity Position?
Not sure if you're in negative equity, or worried about being stuck with your current lender? We'll check your LVR, look at your options with your current lender and others, and give you a clear plan. There's no cost to talk.