Tens of thousands of Australians will be \u201cdevastated\u201d by house price corrections in the nation\u2019s two biggest cities, and could face the \u201cvery dire situation\u201d of having to sell at a loss, experts warn. <\/p>\n
Some Aussies took advantage of the government\u2019s 5 per cent deposit scheme to buy their first home in Sydney or Melbourne, only to be left with negative equity as a result of falling house prices in those cities.<\/p>\n
In addition to a massive mortgage – as high as $950,000, if they bought a $1 million home – they will now owe the bank extra money if they sell. <\/p>\n
Critics say that\u2019s a dangerous position to be in, especially with high interest rates and property tax changes foreshadowing a deeper correction<\/a>. Others argue it\u2019s a temporary situation that only matters if you are treating your home as a financial investment rather than a place to live. <\/p>\n The 5 per cent deposit scheme was expanded in October and about 115,000 people accessed it in the following five months, according to Housing Australia. <\/p>\n SQM Research estimates that of those, about 50,000 would have bought in Sydney and Melbourne, where values began falling earlier this year.<\/p>\n The firm\u2019s founder Louis Christopher said it was \u201ctotally understandable\u201d that first home buyers had jumped at the opportunity of the expanded scheme. <\/p>\n \u201cNo one was to foresee back in October that the RBA was about to lift interest rates three times,\u201d Mr Christopher told news.com.au.<\/p>\n \u201cNo one was to foresee the Middle East war that would put huge pressure on the standard of living, over and above the interest rate rises.<\/p>\n \u201cAnd of course no one was to foresee a federal government doing significant property tax changes that would aggravate the housing downturn which had already commenced.\u201d<\/p>\n Those first home buyers had bought at the peak of the market through no fault of their own.<\/p>\n However, they had now found themselves in a financially risky position with limited options.<\/p>\n It was very difficult to sell a home while in negative equity, and buyers would now be \u201cessentially stuck\u201d in their home until the balance turned positive, Mr Christopher said. <\/p>\n Lending options elsewhere, such as car loans, would become \u201cheavily restricted\u201d for them, and \u201cif you have a scenario where someone loses their job and they\u2019re forced to sell, then it\u2019s a very dire situation indeed\u201d. <\/p>\n \u201cIt\u2019s a real issue for anyone that wants to change their home or borrow money elsewhere,\u201d the analyst said.<\/p>\n \u201cAnd if anyone loses their job and they\u2019re forced to sell in negative equity, heaven help them.\u201d<\/p>\n He said in time, those buyers able to service their loan would get themselves back into positive equity, \u201cprovided the market doesn\u2019t correct by too much\u201d.<\/p>\n But the correction could drag on for much longer than expected.<\/p>\n