Can You Access Equity If Your Property Has Fallen in Value?

Property prices don't always go up. In parts of Australia, values have pulled back — and for homeowners who bought near the peak or have been paying interest-only, this creates a challenging situation when they want to access equity.

Here's a clear picture of what's actually possible when your property hasn't grown as expected.

How Equity Access Works

Equity is the gap between what your property is worth and what you owe on it. To access that equity — through a refinance, top-up, or redraw — lenders calculate your loan-to-value ratio (LVR).

Most lenders will only lend up to 80% LVR without requiring Lenders Mortgage Insurance (LMI). If your property value has dropped, your LVR may have increased — potentially above that 80% threshold.

Example: What a 10% Price Drop Does

In this example, a 10% drop in value wipes out all accessible equity — even though you haven't done anything wrong and your repayments are on track.

What Are Your Options?

• Wait for the market to recover — If you're not in urgent need of funds, this is often the best move.
• Pay down your loan faster — Extra repayments reduce the balance and improve your LVR without waiting for the market.
• Use LMI to access equity above 80% — Some lenders will lend up to 90% or 95% if you pay LMI. The cost may be worthwhile depending on your purpose.
• Cross-collateralise another property — If you own another property with equity, some lenders can use both as security.
• Specialist lenders — Some non-bank lenders have different LVR policies for equity release.

When Is Equity Access Still Possible?

Even with reduced value, equity access may still work if:

• You've been making principal repayments and your balance has reduced significantly
• Your LVR is still comfortably below 80% despite the drop
• You're accessing equity for a purpose that a lender values (investment, renovation that adds value)

What If You're in Negative Equity?

Negative equity — where you owe more than the property is worth — is rare in Australia but can occur after large price corrections or if significant debt was taken on at peak prices.

In this situation, accessing additional equity isn't typically possible. Your best options are:

• Continuing to pay down the loan while waiting for values to recover
• Avoiding selling unless necessary (crystallising the loss)
• Speaking to your lender about hardship provisions if repayments are a concern

Should You Use LMI to Access Equity?

LMI is a cost — typically 1–3% of the loan amount. But for some borrowers, paying LMI to access equity makes sense if:

• The funds will be used for investment that generates returns exceeding the LMI cost
• You're consolidating higher-cost debt that would cost more than LMI over time
• The equity need is urgent (medical, business crisis)

Bottom Line

A property value drop limits your options but doesn't eliminate them entirely. The right move depends on your LVR, loan balance, purpose, and timeline. A broker can model your specific numbers and show you exactly where you stand.