Adam Hughes never imagined buying a modest family home in Perth's outer suburbs would lead him into financial turmoil, struggling to pay a mortgage he can no longer afford.

Key points: Negative equity is when a person owes more than their property is worth

Negative equity is when a person owes more than their property is worth The highest rates of negative equity are in WA, the NT and Queensland

The highest rates of negative equity are in WA, the NT and Queensland People struggling to make mortgage repayments are urged to seek help

The full-time mechanic and father of two bought a three-bedroom house in Byford for $336,000 in 2015.

Within three years, it was valued at just $280,000.

Making matters worse, Mr Hughes went through a relationship breakdown, involving costly family court proceedings.

If he was to sell the house, he would be staring at a $56,000 debt, so he was forced to stay put. But as the bills piled up, he fell behind in his mortgage repayments.

"It just seems to snowball. You get a little bit behind and then six months down the line you are behind with everything," he said.

"I held off as long as I could but then I was forced to go into what they call 'hardship'.

"I rang the bank and said, 'Look, I'm struggling, I really need some help'.

'A gnawing, ever-present burden'

Mr Hughes is among a growing number of Australians grappling with negative equity — when a mortgage holder owes more to the bank than their house is worth.

"The highest rates of negative equity are in Western Australia, the Northern Territory and Queensland, where there have been large [house] price falls in areas with high exposure to mining activity," the Reserve Bank noted in April.

"Almost 60 per cent of loans with negative equity are in Western Australia or the Northern Territory."

Morgan Stanley estimates a 10 per cent fall in house prices would more than double the number of homeowners in negative equity. ( Supplied: RBA )

A new survey by Digital Finance Analytics suggested as many as 112,000 WA households were in negative equity.

But with the property markets in states like NSW and Victoria sharply dropping after housing booms in recent years, it was a problem that other states could soon start experiencing in greater numbers.

Morgan Stanley bank analyst Richard Wiles said headwinds from negative equity were growing as house prices dropped.

"All else being equal, we estimate that if house prices fall a further 5 per cent, then around 4.5 per cent of mortgages will be in negative equity," he said.

"This rises to 7.5 per cent in negative equity given 10 per cent house price falls, or 18 per cent given 20 per cent house price falls."

For many mortgage holders, it's not a crippling financial problem — as long as they can meet their repayments and "ride out" the fall in property values until the market picks up again.

But not-for-profit organisation Anglicare WA, which runs a financial counselling service, said even a small or temporary reduction in household earnings could tip people into mortgage arrears.

"A lot of families are living under enormous pressure, knowing that if something goes wrong — if there's a medical crisis, if they lose their job, if they get less hours at work — that they're going to really be in trouble," chief executive Mark Glasson said.

"And for those people it's like a gnawing, ever-present burden that they're carrying."

House repossessions on the rise

Legal Aid WA offers a mortgage hardship service to people facing the prospect of having their homes repossessed by their lender.

"Currently we're helping about 60 people per month, every month since January, so that's double the number we were seeing last year," Legal Aid WA's director of civil law Justin Stevenson said.

Home mortgage delinquencies are rising, with WA hit the hardest. ( Supplied: ANZ )

Data from the WA Supreme Court shows lenders have so far made 943 applications for property repossessions this financial year.

If applications continue at the rate of previous years, that figure is on track to exceed last year's total of 1,234.

Property repossession applications in WA Year Repossessions 2018-19 943 (year to date) 2017-18 1,234 2016-17 1,239 2015-16 1,134 2014-15 949

"It's a problem that isn't going away," Mr Stevenson said.

He noted many mortgage holders were now facing higher repayments following the expiry of interest-only terms on their loans.

Mr Stevenson said people suffering from mortgage hardship should seek help early.

"Stay away from court, because it only means that the legal costs to the bank will be added to your mortgage debt," he said.

Help is available — seek it early

Mr Hughes was unaware he was eligible for free professional advice until he was referred to a financial counsellor by his electricity provider.

"Before that, I was just drowning," he said.

The counsellor helped him negotiate a hardship plan with his bank, as well as manage outstanding debts to other service providers.

"It may only be a small bill that you're not paying but if you speak to someone before it snowballs … it makes life a lot easier to deal with," he said.

Anglicare WA's Mark Glasson said lenders had become more flexible with hardship arrangements since the Banking Royal Commission.

"I think part of that is because they're required to be," he said.

"But I think in their own interest, banks have seen that they need to take a much closer look at what's happening with the people they're doing business with."

Anglicare WA's chief executive Mark Glasson says some households are not far from crisis. ( ABC News: Frances Bell )

Mr Hughes said he was grateful for the help, but he was still finding his financial situation stressful.

"Especially those times when you just don't know where you are going to get the money from," he said.

"Food for the kids — that doesn't happen very often — obviously I'm lucky enough that I work full time and I have a reasonable job … but it's very difficult to dealt with."