September 21st, 2017 Posted by Insights, Risk Articles No Comment yet

An Omen?

This season’s final of The Block NZ  felt like a bad omen for the property market, particularly in Auckland. According to data just released by the Real Estate Institute of New Zealand, Auckland’s property market might just be slowing. It shows that Auckland house prices fell by 2.9% in August when compared to the same month last year, making it one of only four regions that experienced a decrease in value (the others being Gisborne, Tasman and the West Coast).

Additionally, the number of houses sold in August dropped by 20% nationwide, compared to August 2016. There were 1,472 fewer properties sold across all regions – an average of 47 houses per day. It’s only the third time in seven years that no region has experienced an increase in sales over the same period in the previous year.

What does this mean?

If this does indicate a cooling in the property market, what does it mean? If you’ve bought a home recently, especially in Auckland, it’s likely you have a large mortgage. Should the resale value of your property fall below the value of your mortgage, it’s known as ‘negative equity’.

Negative equity can affect you in several ways. Firstly, the bank where you have your mortgage can require you to make top-up payments to repair your loan to value ratio (i.e., to bring your borrowings back to a level below your property value). No New Zealand banks exercised this right during the Global Financial Crisis, but the option is open to them.

Negative Equity

Unfortunately, having negative equity means that you don’t have the option to up your mortgage to pay for things like renovations, roofing repairs, or a more economical heating system.

While negative equity may not present a huge problem if you don’t plan to sell your house, it can be devastating if you are unable to keep up with your mortgage repayments. If an unexpected event leaves you with no other option than to sell your home, the proceeds of the sale won’t cover the amount you owe on your mortgage, and you will be left with debt still to pay.

Plan B

If you’re worried about the possibility of negative equity, we can help you with a Plan B to protect your home. Mortgage repayment insurance is a way of ensuring that you can continue to meet your payments if you suffer an illness or injury that stops you from earning your normal income. You can even get policies that cover redundancy or bankruptcy.

Give us a call today if you’d like to find out how mortgage repayment insurance can help to protect you and your family.

Photo by Alexander Andrews

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