The frightening scenario being painted for recent home buyers is easy to understand.

You buy a house for $1 million, borrow $950,000 and then house prices fall. Suddenly the house is worth $900,000, but you still owe the bank $950,000.

You are now in negative equity.

Cue the headlines about homeowners being trapped, banks facing losses and the property market spiralling into crisis.

But there is one rather important part of this scenario that tends to get overlooked – the bank really, really wants you to keep paying your mortgage.

That simple, seemingly obvious, fact is why negative equity is not necessarily the catastrophe it is sometimes made out to be.

Banks are in competition with each other for borrowers, particularly in the current market. They want mortgages that keep generating interest payments, not houses, and certainly not houses worth less than what they are owed.

What really matters to lenders is that borrowers keep making repayments.

The moment that changes is often when things go south – for the bank as well as the homeowner. That is when the $50,000 gap between what the home is worth and what the bank is owed goes from being a number on paper to a real problem.

If the bank takes possession of the house and sells it for $900,000, it still has to deal with a $50,000 shortfall, before taking account of the costs associated with selling the property. The only winner in this situation is the buyer getting a property at a bargain price.

Sometimes sellers have no choice – divorce, illness and job losses are all realities of life that can be out of an individual’s control.

But the current handwringing over falling property prices is, at best, missing the dynamics of lending. At worst, it is the work of vested interests desperate to keep house prices soaring.

Banks are not passive spectators waiting for homeowners to fall into negative equity – they have a commercial interest in keeping loans performing.

That is not to say banks will simply forgive debt or protect homeowners from a falling market, or that buyers should take on more debt assuming their bank will rescue them. It does mean a homeowner who can continue servicing their mortgage is in a very different position from one who cannot.

We see this all the time in sharemarkets. When share prices fall and investors see the value of their portfolios drop, the temptation is to sell before things get worse. But if an investor can afford to hold their investments, and their strategy has not changed, selling during a downturn can simply turn an on-paper loss into a real one.

Housing is not fundamentally different except in one specific respect – the power of emotion. Nobody develops quite the same emotional attachment to a parcel of shares as they do to the family home.

But a fall in value does not automatically create a cashflow crisis.

Australia also has an important practical difference from the US housing market during the global financial crisis where so many homeowners simply left the keys and walked away.

Selling a house here is expensive. Stamp duty, agents’ fees and the other costs of moving can add up to an extraordinary amount of money. I looked at this recently and found that moving house, even for a relatively modest upgrade, could cost more than $100,000 once those costs were included.

That is a lot of mortgage repayments.

So what would I do if I found myself with a house worth less than the mortgage? I would talk to the bank. Not because the bank is my friend, but because banks compete for customers, and they do not want good loans walking out the door. A homeowner who is still paying their mortgage is valuable to a lender.

In that position, I would explain my circumstances and ask whether the lender could offer me a better interest rate. I would be particularly interested in doing this if I knew the alternative was refinancing or selling in a falling market. There is no guarantee the bank will agree, but it could be well worth asking.

Amid all the dramatic hot takes, it is worth remembering that there is a big difference between being in negative equity and being unable to service the mortgage.

It is entirely reasonable to be concerned about the value of your biggest asset, but the ability to keep making repayments gives you a critical advantage – time.

Property prices can rise and fall. They can stay flat for years. Nobody knows exactly what they will do next, which is precisely why anyone making confident predictions about the next property crash should be treated with some caution.

A home that falls in value can be uncomfortable, but the real problem is a mortgage you can no longer afford.

The important thing for a homeowner is what happens to their own finances, not the number appearing on a property valuation every few months.

Dr Mark Brosnan is a Certified Practicing Accountant and Assistant Professor of Accounting at Bond University