Key takeaways:
Falling or flat property values can affect how much equity you have available when refinancing
Refinancing may still be possible with less than 20% equity, depending on lender policies and your financial situation
Lenders assess both your equity position and your ability to service the loan
Some borrowers may be able to negotiate a better rate with their existing lender instead of refinancing immediately
An Aussie Broker can help compare lender policies and explain your refinance options
As more Australians review their home loans amid rising living costs and changing property conditions, understanding how property values can affect refinancing has become increasingly important.
Property values have not moved evenly across Australia over recent years, with some suburbs and property types seeing softer conditions than others.
Cotality's May 2026 chart pack data showed big cities including Sydney and Melbourne have entered softer market conditions, while some smaller capitals and regional markets have remained more resilient.
For borrowers considering refinancing, that can affect the options available, but it does not necessarily mean refinancing is off the table.
Depending on your income, repayment history, equity position and lender policies, there may still be pathways available even if your property value has fallen or remained flat.
Understanding how lenders assess refinancing applications can help borrowers make more informed decisions rather than reacting emotionally to short-term market movements.
Christopher Franklin of Aussie Gisborne said many borrowers are currently focused on improving cash flow and understanding where they stand financially.
"From the refinance perspective, the big conversation piece is around cash flow and cost of living,” he said.
For borrowers worried about falling property values, the first step is often understanding how lenders actually assess refinancing applications, and why the process is usually more nuanced than broad market headlines suggest.
Why property values matter when refinancing
When you refinance, lenders reassess both your financial situation and the current value of your property.
That valuation helps determine how much equity you have in your home and how much risk the lender may be taking on.
If your property's value has fallen since you purchased it, your usable equity may be lower than expected. In some cases, that can reduce lender choice or affect the rates and loan features available.
But Dr Diaswati Mardiasmo, chief economist at PRD Real Estate, said borrowers should remember lenders do not simply assess refinancing based on whether Sydney or Melbourne prices are rising or falling in a given month.
“The bank will look at where your property is located, what that suburb has done over a longer period, and what the average annual growth has been over the past five or 10 years,” she said.
“They are looking at it from a holistic perspective, not just a snapshot of what may be happening this month because of a cash rate hike or the Federal Budget.”
Dr Mardiasmo said lenders typically assess the individual property, suburb performance and longer-term growth trends rather than relying solely on broad city-wide averages.
That means even if one city records softer conditions overall, some suburbs or property types within that market may still be performing relatively well.
“You have to remember that Sydney is made up of so many different markets,” she said.
“There is the premium harbour market, more affordable areas, units, houses, all of those different segments.”
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What is equity and how does it affect refinancing?
Equity is the difference between your property’s value and the amount remaining on your home loan.
For example, if your home is worth $800,000 and you owe $500,000 on your mortgage, you may have around $300,000 in equity.
Generally, the more equity you have, the more refinancing options you may be able to access.
A stronger equity position can sometimes help borrowers:
access lower interest rates
avoid lenders mortgage insurance (LMI)
consolidate debts
access equity for renovations or other purposes
improve loan flexibility
However, if your property value falls while your loan balance remains relatively high, your available equity may reduce.
That can affect how lenders assess your refinance application.
What is LVR and why does it matter?
One of the main metrics lenders use when assessing refinancing applications is the loan-to-value ratio (LVR). LVR compares the loan amount to the property’s value.
The lower the LVR, the lower the lender’s perceived risk may be.
Example of how falling property values can affect LVR:
Scenario | Property value | Loan balance | LVR |
Original purchase | $800,000 | $640,000 | 80% |
Property value falls | $720,000 | $630,000 | 87.5% |
Here, the home loan balance has only reduced slightly, but the property value has dropped more noticeably. As a result, the borrower’s LVR increases from 80% to 87.5%.
A higher LVR may reduce lender choice and may result in additional costs, such as lenders mortgage insurance, when refinancing.
That does not automatically prevent refinancing, but it can change the costs and options available.
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Franklin said different lenders may also produce different valuation outcomes.
“Every lender is going to give us sometimes a variance in valuation amounts,” he says.
“So let’s maybe get somewhere where we can get a really good equity position to be able to get an interest rate down as much as possible for you.”
Can you refinance with less than 20% equity?
Refinancing may still be possible with an LVR above 80% depending on your circumstances and lender criteria. Some lenders are willing to refinance higher-LVR borrowers if they demonstrate:
stable income
strong repayment history
manageable debts
good credit conduct
sufficient servicing capacity
However, borrowers with higher LVRs may face:
fewer lender options
higher interest rates
additional fees
lenders mortgage insurance costs
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Franklin said some lenders may still consider borrowers with LVRs between 80% and 85%, although there may be trade-offs involved.
“There is potential for insurance costs and potentially a higher rate,” he said.
“But if we’re going to do it, it’s got to make sense. It’s got to achieve an objective.”
In some situations, refinancing at a slightly higher rate may still improve a borrower’s overall monthly cash flow if it helps consolidate higher-interest debts.
“So while the rate may be a little bit higher, from a cash flow perspective, that’s what we want to achieve,” Franklin added.
An Aussie Broker can help compare lender policies and explain how different lenders may assess your situation.
What happens if your valuation comes in lower than expected?
Many borrowers rely on online property estimates, like Aussie’s Property Report to get a sense of their home’s value, but lender valuations can sometimes come in lower than anticipated.
That is because lenders often use more conservative assessment methods when determining risk.
A lower valuation may:
reduce your usable equity
increase your LVR
affect loan approval conditions
limit how much you can borrow
This can feel stressful for borrowers, particularly in markets where media headlines are focused on falling prices.
Franklin said borrowers should focus on building equity buffers where possible.
“I tell clients: ‘Let’s work out ways to keep gaining equity in the property’,” he said. “Let’s get this set up with an offset account so we can reduce interest expenses. Let’s get weekly and fortnightly repayment schedules happening.”
Why refinancing is about more than property value
Property value is only one part of a refinancing assessment.
Lenders also look closely at whether borrowers can comfortably manage repayments both now and if interest rates rise further.
That means they may assess:
income and employment stability
living expenses
existing debts
credit history
number of dependents
savings patterns
interest rate buffers
This has become increasingly important as many households continue adjusting to higher living costs and mortgage repayments.
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Dr Mardiasmo said affordability pressures are continuing to influence borrower behaviour and borrowing capacity.
“We know the cost of living has gone up. Inflation has gone up,” she said.
“So, there are definite pressures from cost of living, unemployment, and higher mortgage costs because of cash rate increases.”
That means some borrowers may have strong equity positions but tighter servicing capacity, while others may have lower equity but stable income and strong repayment history.
Understanding both sides of the equation can help borrowers assess refinance options more realistically.
You may not need to refinance to improve your rate
Refinancing is not always the only way to reduce loan costs.
In some cases, borrowers may be able to negotiate a better rate directly with their current lender through a repricing or rate review process.
Franklin said these conversations are becoming increasingly common.
“We do on a regular basis with our admin team, on check-ins with customers,” he said.
"And it’s not just on rate. It’s also, is the lender and the loan product suitable?”
This can sometimes help borrowers:
avoid a full refinance application
avoid valuation complications
reduce upfront costs
improve cash flow while rebuilding equity
Franklin said some borrowers also discovered they are not making the most out of the features already available to them.
“We’ve got some savings sitting over here and another banking account with another lender,” he said.
“So let’s look at the rate and let’s make sure we’ve got the right loan product set up for you.”
An Aussie Broker may be able to help compare your current loan against market options and negotiate with your lender on your behalf.
What can you do if you’re in negative equity?
Negative equity occurs when the amount owing on your mortgage is higher than your property’s current value.
This situation can make refinancing more challenging, but it does not necessarily mean borrowers are out of options.
Depending on your circumstances, potential strategies may include:
continuing to make repayments to gradually rebuild equity
making extra repayments where possible
reducing other debts to improve servicing
waiting for property values to recover
negotiating with your current lender
avoiding unnecessary refinancing costs until your position improves
Franklin said many borrowers are now focused on proactively strengthening their financial position while conditions remain uncertain.
“The best thing we can try to do right now, in the event it does happen, is let’s work out ways to keep gaining equity in the property,” he said.
For borrowers experiencing financial stress, seeking support early can also be important.
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Costs to consider before refinancing
Even if refinancing is possible, it is important to weigh potential savings against upfront costs.
Depending on the loan structure and lender, refinancing costs may include:
discharge fees
application fees
valuation fees
settlement fees
break costs on fixed-rate loans
potential LMI costs
For some borrowers, the long-term savings from refinancing may outweigh these costs. For others, waiting until equity improves or negotiating with an existing lender may be worth considering.
This is where scenario modelling can help borrowers compare trade-offs more clearly.
An Aussie Broker can help explain the potential costs involved and whether refinancing may make sense based on your circumstances.
Steps to take before refinancing after a value drop
If you are considering refinancing after your property value has fallen, it may help to take a step-by-step approach.
1. Estimate your current equity position
Review recent comparable sales in your area and check your current loan balance to get a rough sense of your equity position.
2. Understand your LVR
Knowing your approximate LVR can help you understand which lenders and loan types may be available.
3. Review your current interest rate
Compare your current loan against available market rates and features.
4. Assess your overall affordability
Look beyond interest rates alone and consider repayments, living expenses and financial buffers.
5. Compare refinancing costs
Factor in potential fees and any break costs before making decisions.
6. Speak with a broker before applying broadly
Submitting multiple applications unnecessarily can affect your credit file. Speaking with a broker first may help narrow down suitable pathways more strategically.
The bottom line
Property markets do not move in a straight line, and refinancing outcomes are rarely determined by one factor alone.
While falling property values can affect equity and lender options, borrowers may still have pathways available depending on their broader financial position.
Cotality’s latest data reinforces how varied housing conditions have become across Australia, with market performance differing significantly between cities, regions and price points.
Taking the time to understand your LVR, servicing capacity and refinance costs can help you make more informed decisions rather than reacting to short-term market movements.
An Aussie Broker can help you compare refinance options, model different scenarios and understand which pathways may suit your circumstances.