Your home can fall in value while your loan barely moves. If the loan becomes bigger than the home's value, you are in negative equity.
That sounds frightening. What happens next depends on whether you can keep paying and whether you need to sell.
Gold Coast property blog
What happens if you owe more than your home is worth?
Updated 29 October 2026
A simple example
You buy for $800,000 with a $40,000 deposit and a $760,000 loan.
If the home later becomes worth $720,000 and the loan is still $760,000, the gap is $40,000. You have lost the deposit on paper and owe another $40,000 above the home's value.
This example leaves out loan repayments, buying costs and selling costs. It shows the effect of the price change alone.
If you stay and keep paying
A lower value does not itself mean you have missed a payment. Your income may still cover the loan and living costs.
Time gives you a chance to pay down the loan. Prices may recover, but no one can promise when or by how much.
The RBA's October 2026 review makes the key distinction: negative equity alone is not enough to cause default when borrowers can still service their loans.
If you have to sell
The sale needs to cover the loan payout and the costs of selling. If it cannot, you need to resolve the shortfall with your lender.
Handing over the keys does not mean the debt simply disappears. Get the actual payout figure and discuss the gap with the lender before committing to a sale.
If you want to change lenders
A small or negative stake in the home can make refinancing harder. A cheaper advertised rate is not much help if the new lender will not approve the loan.
The bank looks at the property value as well as income, expenses and other debts. Speak to the lender early if payments are becoming hard.
What the deposit scheme changes
The 5% deposit scheme helps eligible buyers enter with less cash and without lenders mortgage insurance. It does not insure the buyer against a price fall.
The useful distinction is simple: being able to buy, being able to keep paying, and being able to sell without a shortfall are three different tests.
For the news behind the warning, read Cheaper homes, bigger falls. It explains why a lower purchase price does not always mean a safer position.
Related: Cheaper homes, bigger falls