UK faces negative equity 'nightmare' for 5m

Friday, 27 February 2009 12:00

Almost five million people could be facing negative equity by the end of the year, according to new research.

A survey of 60,000 people by GfK NOP based shows as many as 3.8 million homeowners are already facing negative equity - owing more on their mortgage than their property is worth.

Those most affected are buyers who made a purchase at the height of the market and have now seen prices drop.

It is estimated buyers and half of those remortgaging since 2005 are likely to be in negative equity

Data from Nationwide show house prices fell 17.6 per cent in the last year - losing homeowners £31,612 from the value of their homes.

It puts house prices back at levels last seen in April 2004.

The average property has now lost 21 per cent since the peak of the market in October 2007.

Andy Thwaites, of GfK Financial, said: "The shift to negative equity has the potential to be a mammoth welfare disaster for the nation.

"The reality is that if there are further job cuts, the problem will become significantly worse."

Further house price falls are expected in the coming year.

"Powerful negative downward forces on housing market activity and prices continue to come from ongoing very tight credit conditions, still relatively stretched housing affordability on a number of measures, sharply rising unemployment, slowing income growth, widespread expectations that house prices are likely to fall a lot further and an unwillingness of many people to commit to buying a house when the economic outlook and job prospects look so bad," said Howard Archer, chief Uk economist at HIS Global Insight.

He went on to predict a further 15 per cent drop in house prices in 2009, and a five per cent drop in the first half of 2010, before they start to flatten out.

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