The first question is whether you can afford to pay the total loss of €5,000 per year.
If your other income allows you to pay that, then you should continue to honour your debts.
If you can't meet your repayments as they fall due, then you are insolvent.
hoping the property will appreciate in value and continue to pay interest only
You have negative equity of around €230k. Prices will have to appreciate by 150% for your negative equity to evaporate.
What are the insolvency procedures in Australia? If they are as easy as the UK, then go for it.
It's probably better for everyone if you sell the property yourself.
So offer UB a deal.
You will sell the property and they will write off the shortfall.
You may agree to pay a small part of the shorfall as a compromise.
If they don't agree, then you have to decide whether to sell the property or just hand back the keys.
You are better off selling it yourself as the insolvency process is much easier with unsecured debts.
The question of insolvency in Australia comes up on Askaboutmoney from time to time. A Key Post on the topic would be very useful so if you investigate it, you might do a summary for us.
Brendan