They’re trapped with a $190,000 loss while cheaper, identical homes rise next door

Thursday, 4 December 2025

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The gut punch

Hannah and Bruce* thought they were doing the right thing for their financial future.

They pooled together savings and were able to put down a 10% deposit on a two-bedroom townhouse in Wellington.

The problem is that this transaction happened at the market peak in 2021.

The value of their property has since cratered, and they’ve seen the same developers build identical townhouses in the same area, which are now being sold for under $600,000.

It’s a real gut punch for a couple that’s forking out around $40,000 in mortgage payments every year, most of which is going to interest.

All the advice they’ve been given so far is that they’re trapped.

And they now feel “stuck paying so much on what is effectively a depreciating asset for the foreseeable future”.

So what impact will this have on them in the long term? And is there anything they can do to dig themselves out of this hole?

Dealing with loss

The financial advisers I spoke to for this piece variously described this situation as tricky, incredibly tough and, on the more straightforward side, as just plain bad.

This is to say, Bruce and Hannah will have their work cut out for them in the coming years. There are no simple answers to this question.

They can, however, take solace from the fact that they aren’t alone.

“Thousands of people are in the same boat,” Enable Me financial adviser and chief strategic coach Katie Wesney tells me.

“They made what seemed a reasonable decision in 2021 with the information they had.”

The amount of value ripped out of the market in Wellington has been staggering. The average house price hit a peak of $1.338 million in March 2022, but the average has since dropped 30% to $956,000 (although numbers have risen in the last year).

This represents an average dollar value loss of as much as $382,000.

Hannah and Bruce haven’t lost quite that much in pure dollar terms, but a drop from $790,000 to around $600,000 is still above 20% and would hurt enormously – especially for someone who started with relatively low equity.

Wesney doesn’t negate the impact of that loss, but says it’s important to remember this is only a paper loss. It has not yet been realised.

“Wellington’s been hammered, but markets are cyclical,” says Wesney.

“Selling now locks in a loss, while staying means they’re still building equity and will benefit when things recover.”

This might be a long slog, but it will allow the couple to focus on what Wesney describes as the controllables (those things in your immediate control).

As an individual, you have no sway on the property market and what it could do in any given year. Worrying incessantly about it is an exercise in futility. What you can do, however, is tackle your mortgage head-on.

“Do everything to find and direct spare money into paying down the loan faster,” says Wesney.

“Extra payments can genuinely shift the timeline on getting back above water. They can’t switch banks with negative equity, but they can try to negotiate a better rate with their current lender when their term ends. Even small wins here add up.”

Another option would be to consider renting out their home and then renting a cheaper place, says Wesney.

“If they can rent the townhouse out and live somewhere cheaper themselves, they reduce their costs now while keeping the asset. The maths might surprise them.”

Reframe the problem

Samantha Wilson, a financial adviser at MortgageLife, says selling the property at this stage would be a huge financial blow.

“With a 10% deposit, the loan-to-value ratio is high, which makes selling difficult because the property’s current value may not cover the mortgage balance,” she says.

None of this is ideal, but Wilson says it helps to think of a mortgage as “a long-term investment rather than a short-term setback”.

“While recovery may take time, history shows values tend to stabilise and grow again,” she says, explaining that Bruce and Hannah should focus on building equity, managing expenses, and maintaining financial resilience.

“There isn’t a quick escape, but there is a path forward: keep their heads down, manage the debt strategically, and remember that market conditions won’t stay the same forever.”

But what if they still want out?

The stress of living in negative equity will not go away any time soon.

Tim Fairbrother, a certified financial planner at Rival Wealth, says it will likely take years for the house to make enough capital gains to balance the losses.

“They are stuck with the debt, unless a family loan can bail them out, they downsize to make the debt smaller in a different area of Wellington, or they buy another investment property that will average out the price they have paid,” says Fairbrother.

All of these escape strategies would require family help.

To sell now and wipe the debt, they would likely need a loan of $190,000 from a family member, says Fairbrother.

Buying and selling a new home with a smaller mortgage would possibly necessitate a slightly lower sum of around $130,000, but this would largely depend on how much the bank would be willing to lend them.

The third option, says Fairbrother, might sound counterintuitive in that it suggests buying into another property.

This would require a decent deposit to ensure the bank is willing to take on the risk. Once again, this will only be possible with family assistance.

The developer issue

A concern Hannah and Bruce share with many homeowners lies in the impact new building projects might have on their houses.

Informetrics chief executive Brad Olsen says this comes down to demand and supply economics.

In the 2010s, we had high migration into New Zealand and not enough supply, which led to house prices rising quickly.

Things have been quite different in recent years.

In the five years leading up to 2024, Wellington's population saw a small decline of 1%, while the dwelling stock increased by 4.3%.

Olsen says Stats NZ data shows over the last 5 years, there's been an average increase in about 2% a year in terms of private dwelling stock.

This will ultimately have an impact, particularly if it comes at a time when our migration figures into New Zealand aren’t as high as they once were.

“House prices in general are tracking sideways at the moment,” says Olsen.

“This comes down to the number of properties for sale at any time… Real estate data shows the number of properties available for sale remains at its highest in about 10 years.”

There’s more housing stock available, more people looking to sell and not quite as many eager buyers as there normally are.

However, Olsen says that building levels have come back from their peak, and the rate of building won’t be as high as it has been.

“It wouldn’t be my expectation that you’d see huge buildings come up and crater property values around the country,” he says.

That said, it always pays to keep an eye on migration information, the number of available listings and whether new builds are likely to pop up in your neighbourhood.

All these factors can have an impact on house prices, but it’s essential to remember that your property value only matters when you’re trying to sell.

Unrealised losses can create stress, but they only exist on paper until we decide to lock them in by making a sale. Sometimes a bit of perspective can go a long way.

*Disclaimer: The information in this article is of a general nature and is not intended to be personalised financial advice. The names of the individuals in this story have been changed to protect their privacy.

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