What is negative equity?

If a house price falls in value to the point where the owner owes more on their home loan than what the house is now worth, this is called negative equity. To answer some frequently asked questions about negative equity, we sat down with our Product Manager for Home Loans, Darren Corfield. This is an insight into negative equity.

What is home equity?

Your equity is the difference between how much you owe the bank on your home loan, and what the house is worth.

There are two things that can increase your equity – paying down your home loan or the value of your property increasing.

When you purchase a home, you pay a deposit. This is the amount of equity you start with. You usually need at least a 20% deposit to purchase a home, which would mean you have 20% equity in the property.

What is negative equity?

Negative equity is when the market value of your home has reduced so far that what you owe is more than what you could sell the property for, after deducting costs to sell the property.

Some people have experienced negative equity due to unforeseen natural events, but this is the first time in a long time where we’ve experienced a widespread decrease in house prices across New Zealand.

When the difference between the loan balance and the value of the property is shrinking, the owner’s equity is declining.

If I’m in negative equity what does this mean for me?

For most people it doesn’t mean anything.

Negative equity will only impact you if you're looking to borrow more, sell your property or are unable to continue to make your mortgage repayments. If any of these situations apply to you, contact us so we can assist.

Should I be worried if I'm in negative equity?

In general, there’s no reason to worry, provided you’re not making any changes and you continue to make your mortgage repayments.

We won't charge you higher interest rates if you move into a higher loan to value ratio (LVR) position during your fixed term. We'd only look at this if you're applying for new home lending or you're wanting to sell your property.

If you have concerns, please contact us.

Does having negative equity impact your credit score?

No, your credit score is based on your repayment behaviour to loans, credit cards and utilities such as power and phone bills.

So, if you continue to make repayments, it won’t impact you.

Can I retain my special interest rate if I’ve moved into a negative equity position

Yes, you'll retain your current special interest rates on your existing home loan, but you won't be eligible for any top-up lending.

Can I apply for a top-up home loan when in negative equity?

Generally, no. Unfortunately, we're unable to consider additional home lending if you're in negative equity.

If you have urgent needs, such as urgent home repairs, please contact us to discuss how we may be able to assist.

What should I do if I am facing negative equity?

As long as you're not borrowing more or selling your property, and you can continue making your repayments, you don’t need to do anything, except continue to make your home loan repayments on time.

If you have concerns or your situation has changed, we can talk you through your options so please contact us as soon as possible.

What if I need to sell my house while in negative equity?

Contact us sooner rather than later to talk through your options.

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