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What happens if prices fall after I buy with a 5% deposit?
Bayley Clarke · Mortgage broker on the road · Last checked 3 September 2026 · 3 min read
The short answer
Then you enter what's called negative equity. It pretty much means your property is worth less than what you owe on the mortgage. The bank isn't going to knock on your door asking for money to get your loan back to 95%, and they're not going to sell your house from under you.
All it means is you keep making your repayments on time. Over time, with growth in property, that negative equity should change to positive equity. It's a time in the market thing, not a timing the market thing, and it's only ever obvious in hindsight.
The eighty second version. The rest of this page is the detail underneath it.
The scary word, and what it actually means
Negative equity is a big scary word, and it can be a little bit scary for a lot of people. It pretty much means that your property is worth less than what you owe on the mortgage. Buy at $500k with 5% down, so a $475k loan, and if the market dips 8% the place is worth $460k. You owe more than it's worth. That's negative equity.
It's more likely at 5% than at 20% because there's less buffer between the loan and the value. Which is why the question comes up with the scheme. The short definition has its own page if that's all you're after.
What the bank does about it: nothing
The repercussions are not what you think. The bank isn't going to suddenly knock on your door and go, give us money to make sure your loan is still 95%, which is what you bought the property at originally. They're not going to try and sell your house from under you.
They've already given you the money. As long as you're making your repayments on time, there's nothing for them to act on. A bank only moves on a property when the repayments stop, not when the market does.
What it costs you is headspace, not cash
It's something that's going to take up real estate in your mind, knowing that you may have overpaid and could have waited a little bit longer before buying. However, these things are only obvious in hindsight, which of course is 20-20 vision.
Where it does bite is if you need to sell or refinance while you're under water, because the numbers don't stack up until the value recovers. If you're staying put and paying, it's a number on a statement.
The honest bit: you can't time property, so don't build the plan on it
Buy with a realistic budget based on what you can afford, expecting that you cannot time property. If the budget only works because prices keep rising, that's not a budget, that's a bet.
It's a time in the market, not a timing of the market. Five years in, most people who bought sensibly at 5% aren't thinking about the dip they rode through in year one.
Want the budget that survives a dip?
A 30 minute call. We run your borrowing capacity, set a purchase price that leaves room, and I tell you straight whether 5% is the right entry point for you.
No cost to you, ever. The bank pays me when a loan settles. · How I get paid
Next question
What is negative equity?The one minute definition, if you just want the term explained.
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