After several strong years, 2026 has delivered a change of weather in parts of the Australian property market, and with it, a term that has not had much airtime in a long while: negative equity. If you bought recently with a small deposit in Geelong, Armstrong Creek, Melbourne’s growth corridors or anywhere else in Victoria, headlines about falling values can feel alarming. If you are a buyer waiting on the sidelines, the same headlines look like opportunity.
This guide explains what negative equity actually is, who is genuinely exposed, what it does and does not affect, and the practical steps borrowers and buyers across Geelong, the Bellarine Peninsula, the Surf Coast, Melbourne and Australia-wide can take right now. As always, this is general information: your position depends on your loan, your property and your plans, so get advice on your own situation.
First, the facts as reported: with the caveat that housing data moves monthly and forecasts are opinions, not certainties. According to reporting of the Cotality Home Value Index released in early August, national dwelling values fell around 0.7% in July 2026, described as the largest monthly decline since December 2022, with five of the eight capital cities recording falls. Sydney was reported down roughly 1.4% for the month and about 4% over the quarter; Melbourne down roughly 1.2% for the month and around 3.4% over the quarter, leaving Melbourne values a little under 3% lower than a year earlier. Closer to home, regional Victoria (which includes Geelong and the Bellarine) was reported to have recorded its first monthly fall since January 2023, a comparatively modest dip of around 0.3%.
Where it goes from here is genuinely uncertain. One major bank has reportedly revised its national forecast to a fall in the order of 5% for 2026, while SQM Research’s Louis Christopher has characterised the market as going through “a painful adjustment” rather than a crash. Adding to the mix, the Reserve Bank’s Monetary Policy Board meets on 10-11 August, with its decision announced at 2.30pm on Tuesday 11 August: we covered how to position for it in our guide to the RBA’s August 2026 decision. Treat every forecast, including the gloomy ones, with the same healthy scepticism.
were reported to have recorded falling dwelling values in July 2026 (Cotality Home Value Index, as reported in early August). Regional Victoria’s dip was far milder than Sydney’s or Melbourne’s: market conditions differ street by street, so check your own suburb’s data before drawing conclusions.
Negative equity is simply the situation where your outstanding loan balance is larger than your property’s current market value. It is the mirror image of the loan-to-value ratio (LVR) maths every lender runs: an LVR above 100% means negative equity. The smaller your deposit was, the less the market has to move to put you there. The table below is pure arithmetic (an illustration, not a forecast) for a hypothetical $650,000 purchase, ignoring purchase costs and assuming no repayments have yet reduced the balance.
| Scenario ($650,000 purchase) | 5% deposit (loan $617,500) | 20% deposit (loan $520,000) |
|---|---|---|
| Value unchanged: $650,000 | $32,500 equity | $130,000 equity |
| Value falls 3%: $630,500 | $13,000 equity | $110,500 equity |
| Value falls 5%: $617,500 | Approximately $0 equity | $97,500 equity |
| Value falls 8%: $598,000 | −$19,500 (negative equity) | $78,000 equity |
*Illustrative arithmetic only: not a forecast, quote or advice. Two real-world factors soften the picture: principal-and-interest repayments reduce your balance every month from day one, and any money sitting in an offset account or redraw is a buffer the raw LVR ignores. A buyer who purchased 18 months ago has typically already chipped a meaningful slice off the loan.
Media reporting in early August 2026, citing Housing Australia data, put the number of guarantees issued under the expanded 5% deposit Home Guarantee Scheme at around 50,000 since the income and price caps were lifted on 1 October 2025. Those buyers (along with anyone who purchased recently using a low deposit loan or with lenders mortgage insurance at a high LVR) started with the thinnest equity buffer, so they are the cohort headlines focus on. It is worth being precise about what the scheme does and does not do: the government guarantee replaces the need for LMI, but it does not protect the borrower against price falls. The equity risk sits with you, exactly as it does for any other borrower.
Exposure is also uneven geographically. Reported falls have so far been concentrated in Sydney and Melbourne (particularly at the upper end of those markets) while regional Victoria’s reported dip has been mild by comparison. History offers some perspective too: the Reserve Bank’s past analysis of negative equity in Australia found it has been rare outside resource-town downturns, because most borrowers amortise their loans and hold through soft patches. That is not a promise about this cycle, but it is a reminder that a soft quarter is not a repossession notice.
What it does not change: your repayments, your interest rate, or your lender’s attitude to a loan that is being paid on time. Australian lenders do not demand top-up payments or force a sale simply because a valuation has fallen; while you keep making repayments, the loan simply continues. A fall in your suburb’s median is a paper movement until the day you sell.
What it does change: your options. Refinancing to a sharper deal becomes difficult above roughly 80% LVR (LMI usually applies) and effectively unavailable above 100%: which is one reason locking in a competitive loan structure early matters; our refinancing guide and free refinance assessment can tell you where you stand. Selling in negative equity means bringing money to settlement, so discretionary moves are usually better deferred. And plans that rely on drawing on home equity (renovations, an investment purchase deposit) may need to wait for the buffer to rebuild. If a decision hinges on your property’s value, remember that lender valuations and free online estimates can differ materially; our property valuation guide explains how the real number gets set.
A young couple in Armstrong Creek who bought their first home in late 2025 with a 5% deposit under the expanded guarantee scheme called us recently, worried by headlines that buyers like them were “underwater”. We sat down and ran their actual numbers rather than the national ones: their repayments were on schedule, several months of principal had already come off the balance, and their new estate had not moved the way inner-Melbourne apartments had. Their effective buffer was thin but positive. The plan we agreed was unglamorous: stay put, direct a small monthly surplus into their offset to rebuild the buffer faster, and revisit the loan once their LVR improves enough to open up refinancing options. No panic, no forced decisions: just their numbers, not the headlines.
Keep repaying, and let amortisation work. Every principal-and-interest repayment rebuilds equity regardless of what the market does. On most loans the balance falls every single month: the market has to keep falling faster than you repay for your position to worsen.
Build the buffer deliberately. Surplus cash directed to your offset account or extra repayments does double duty in a soft market: it cuts the interest you pay and rebuilds your equity position at the same time. Even small, regular amounts compound: we walked through the mechanics in our tax refund strategy guide just last week.
Do not crystallise a paper loss without a reason. Selling into a soft market out of anxiety converts a temporary position into a permanent one. If circumstances genuinely force a move (job relocation, family change), talk to your lender and broker early; hardship and bridging options exist, and early conversations always beat late ones.
If you are buying, do it on your numbers. Softer prices and a possible rate decision this week make spring interesting for prepared buyers across Geelong, the Bellarine and Melbourne, but the same lesson applies in reverse. A larger deposit, realistic pre-approval, a property you would happily hold for seven-plus years, and a structure that suits you (see fixed vs variable) matter far more than perfectly timing the bottom. Our spring preparation guide covers the timeline, and our home loans hub is the place to start.
Most borrowers have no idea what their current LVR actually is: they remember the number from settlement day. Your real position today reflects every repayment since, your offset balance, and your property’s current value, not its purchase price. Before you make any decision based on headlines (or lose sleep over them), ask your broker to run your actual LVR. It takes minutes, and it is very often better than people fear.
Negative equity means your outstanding loan balance is higher than your property’s current market value, an LVR above 100%. To check your position, compare your current loan balance (after all repayments, less any offset funds) against a realistic current valuation, not your purchase price. A broker can arrange an updated valuation estimate and calculate your true LVR for you.
No, Australian home lenders do not issue margin calls on owner-occupier home loans. While you continue making your repayments on time, a fall in your property’s value does not change your loan, your rate or your repayments. The practical effects are on refinancing, selling and equity access. If you are struggling with repayments themselves, contact your lender’s hardship team and your broker early.
Refinancing to a new lender generally is not available above 100% LVR, and above roughly 80% LVR it usually involves lenders mortgage insurance, which often makes switching uneconomic. Repricing with your existing lender is still worth pursuing: banks regularly sharpen rates for customers who ask. Selling is possible but you would need to cover the shortfall at settlement, which is why discretionary sales are usually best deferred until your buffer rebuilds.
Nobody can reliably time the bottom of a property market: forecasters currently disagree on where 2026 ends up, and conditions vary sharply between suburbs and price segments. The sounder approach is to buy when your finances are ready: a solid deposit, secure income, pre-approval in place, and a property you would be comfortable holding long term. Softer conditions mean more choice and more negotiating room for prepared buyers: that preparation matters more than prediction.
Whether you want your actual LVR checked, your loan reviewed before the RBA’s decision, or a buying strategy for a softer market, we’ll give you the numbers: not the headlines.
With years of experience in mortgage broking and finance, Melanie helps first home buyers, refinancers, investors and business owners across Geelong, the Bellarine, the Surf Coast, Melbourne and regional Victoria make their money work harder. Contact our team on 03 9020 2699.
