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Refinancing

Can a bank call in your home loan if the value falls?

Usually, a lower property value on its own is not the same as missing a repayment or breaking your loan agreement. It can still make refinancing or selling much harder.

Updated Nathan VecchioDirector & Mortgage BrokerReviewed byJayden VecchioMortgage Broker
Fact checked
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Does negative equity mean your loan is in default?

  • Negative equity

    The property is worth less than the loan balance. Even with positive equity, there may not be enough left to refinance or sell after costs.

  • Loan default

    The lender says something required by the loan or mortgage has not been done, such as making a payment or fixing a serious breach.

You can have one without the other. A borrower may keep making every repayment while the property value is below the loan. Another borrower may be in default even though the property still has plenty of equity.

See what a lower value changes

This is an equity illustration, not a bank decision.

  • Estimated property value

    $680k

  • Loan balance

    $600k

  • Equity before costs

    $80k

    Before selling or refinancing costs.

  • Loan-to-value ratio

    88.2%

    The loan as a share of the example property value.

Equity is the property value minus the loan balance. LVR is the loan balance divided by the property value. This can change refinance or sale options, but it does not decide whether the existing loan is in default.

When can a lender take action?

A lower valuation is not, by itself, proof that your loan is in default. Check the alleged default against your loan and mortgage documents.

A lender arranging another valuation is not the same as calling in the loan. The valuation gives the lender information. Demanding repayment generally requires an actual default under the loan or mortgage.

If the lender relies on a value-related term, ask it to identify the term and the alleged breach, and have your solicitor review the notice.

That does not make every contract identical. Your signed loan and mortgage documents still matter, particularly for business lending, company borrowers, cross-collateralised loans or a loan that is not covered by the National Credit Code.

What a lower value can change

A lower value may prevent refinancing

The same loan against a lower value produces a higher LVR. The new lender may ask for more cash, mortgage insurance or a smaller loan. It may also decline the property based on its current rules.

If the valuation looks wrong, use our guide to challenge a bank valuation.

Selling may leave a shortfall

The sale price needs to cover the lender's payout figure and selling costs. If it will not, speak with the lender and your solicitor before signing a sale contract. The mortgage is not normally released simply because the property has been sold.

Several properties may be tied together

If one lender holds more than one property as security, a fall in one value can affect the release or refinance of another property. Our cross-collateralised loan guide explains how those loans are linked.

Repayment trouble changes the priority

If you are already behind, overdue repayments take priority over the estimated property value. Check what is overdue, the next deadline and whether you have contacted the lender's hardship team.

What happens after a default notice?

For a regulated home loan, the National Credit Code generally requires the borrower to be in default and receive a compliant notice before enforcement begins. The notice generally gives at least 30 days from the date of the notice to fix the default.

If the default is fixed within the notice period, the contract or mortgage is reinstated for that default. A later breach of the same type must also be fixed by the deadline. There are limited exceptions to the notice requirements, so a default notice or court document should be reviewed promptly by a solicitor or financial counsellor.

What should you check next?

  1. Read the lender's latest letter.
    Does it actually allege a default, or are you worried because a valuation came in low?
  2. Check the repayment record.
    Confirm whether anything is overdue or subject to a hardship arrangement.
  3. Check which properties secure the loans.
    List every loan and every property held by that lender.
  4. Run the sale or refinance numbers.
    Use the lender's payout figure and realistic costs rather than relying only on an online property estimate.
  5. Separate finance from legal advice.
    A broker can check whether refinancing is realistic. A solicitor needs to advise on enforcement rights and a default notice.

Want me to check how the lower value affects your plans?

Send me the current loan balance, the value you were given, the lender's latest letter and what you are trying to do. I can check the finance side and tell you which questions need to go back to the lender, valuer or your solicitor.

or call 1300 088 065

General information only. Subject to assessment, lender criteria and your circumstances.

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Experience and sources

How this guide was checked

We checked lender policy, National Credit Code sections 88, 89 and 93, and ASIC guidance on Code coverage on 17 September 2026. The Code reference is Compilation 52, effective 1 July 2026. Your own loan documents and the law that applies to them still matter.

Written byNathan VecchioDirector & Mortgage Broker

Nathan Vecchio is a director & mortgage broker at Hunter Galloway. Hunter Galloway Finance Pty Ltd is Credit Representative 476903, authorised under Australian Credit Licence 389328.

Sources

General information only. This is not a credit assessment, valuation, financial counselling or legal advice. Your own loan documents and the law that applies to them still matter.