One in five borrowers to face negative equity
Around ten per cent of UK mortgage borrowers are in negative equity - with the east Midlands most at threat.
Today rating agency Fitch - looking at the data covering 2.7 million mortgages totalling £263 billion within mortgage backed security trusts - confirmed findings from the Bank of England.
The Bank of England estimates between seven per cent and 11 per cent of UK mortgage holders were in negative equity in the first quarter of the year.
Fitch now expects this to double to 23 per cent of all borrowers if house prices decline in total 30 per cent from the peak of the market.
The body estimates Northern Rock's Granite pool of secured loans could see 32 per cent of loans in negative equity. Meanwhile Gracechurch - which oversees loans originating from Barclays - is thought to have just two per cent of mortgages in negative equity.
"While prime borrowers are unlikely to default solely because the value of their house is less than the outstanding balance of their mortgage, Fitch expects default rates to be higher for borrowers in negative equity," said Ketan Thaker, director in Fitch's European retail mortgage backed securities team.
"Borrowers with equity in the property have options available to them in case of financial distress that borrowers in negative equity do not, for example sale of property, remortgaging, better availability and pricing of products, and the withdrawal of equity to fund temporary cash shortage, which could help avoid foreclosure."
It also warns those with limited equity, may well be treated as having negative equity because so few lenders are offering mortgages at high loan-to-value levels.
It estimates 35 per cent of borrowers do not have enough equity to secure a remortgage - although many will be happy to drop onto currently low standard variable rates.
Across the nation
The East Midlands is suffering the highest levels of negative equity. Some 15.1 per cent in this region are suffering negative equity.
This compares to 3.6 per cent in Scotland.
East Anglia, the North-West and Wales were also heavily hit.
In Northampton, Nottingham, Derby, Peterborough, Manchester, Cardiff and Wigan were named as the town where negative equity was highest.
Postcode areas with high levels of negative equity were also highlighted.
Some 31.2 per cent of mortgages in Birmingham's B2 area were in negative equity, 28.1 per cent in Sunderland's SR1 and 29.6 per cent in Salford's M50.
Highest amounts of negative equity were recorded in Northern Ireland where the average difference between the value of their mortgage and house or someone in negative equity was at £23,056
In London - the gap was £12,972.
These differences between regions are partly driven by the fact that house price movements have differed by region, with some seeing bigger drops than others.
Swing back?
"Even if house prices exhibited a modest recovery from their lowest levels, it will take several years for borrowers to come out of negative equity," the report states.
Making overpayments to climb out of negative equity may not be an option for many recent buyers, warns Fitch, as some fixed-rate deals just may not allow them to so or because they stretched themselves so much to secure a mortgage that they have not got the ability to save or overpay.
But those who can overpay are expected to do so given the low current savings rates.
Overpayment, Fitch finds, is not a major option and will not have a "significant impact in reducing negative equity levels in the short to medium term."
Danger for the whole market
Fitch warns the extent of negative equity in the housing market in itself could act as a drag on the speed and magnitude of a recovery in the housing market.
An increasing number of people in negative equity would, for example, need extra cash before they are able to sell their home or would need to pay down their mortgage and bring the LTV in line with lenders' existing criteria for remortgaging.
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