Friday, March 23, 2012

The risk of falling prices

Financial comparison website RateCity CEO Damian Smith said borrowers who have taken on a home loan with a small deposit are most at risk from the impact of falling prices.

For example, if a property was purchased for $400,000 with a 5 per cent deposit, but then that house price fell by 10 per cent, instead of having $20,000 of equity value in the property, there would be none at all.

"If you try to refinance in those circumstances, you will find yourself owing more than the property is worth - a mortgage of $380,000 as against property value of just $360,000," Mr Smith said.

Average Australian capital city property values fell by 3.6 per cent in 2011, according to the latest RP Data-Rismark Home Value Index. For a $400,000 home, that decline translates to a new value of $385,600. Property values declined in every capital city with Brisbane experiencing the biggest fall of 6.8 per cent. Full story here

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