Falling prices spell negative equity

The Council of Mortgage Lenders has reported that almost a million people are now in negative equity because of the sharp fall in property prices.

Thirteen per cent of people who took out a mortgage between April 2005 and the end of 2008 are now in negative equity.

It’s estimated that a quarter of a million borrowers have a shortfall of nearly £20,000. About three in four have an average shortfall of between £6000 and £8000. Approximately 13,000 mortgagees are in negative equity by £37,000.

About 150,000 mortgagees in the South East owe more on their property than it is worth. This represents about 5.2 per cent of all households in the area. In the North the situation is worse with 70,000 homes worth less than the figure they were valued at when the mortgages were granted – which accounts for 9 per cent of households in the region.

Another 1.1 million borrowers have seen the equity stake in their home collapse to less than 10 per cent. Having only a small degree of equity in ones home makes it difficult to get a competitive fixed rate deal when their existing home loan comes to an end.

House prices have fallen by nearly 20 per cent since the market peaked two years ago.

Bad though they are the negative equity figures are still less than in the early 1990s property crash when there were more than 1.5 million householders in negative equity.
Recent figures predicting that 5 million people will move into negative equity were dismissed as alarmist by the Council of Mortgage Lenders.