900,000 in negative equity
Some 900,000 homeowners are currently in negative equity - with falling house prices set to increase the number owing more on their mortgages than their homes are worth.
A total of 13 per cent of homeowners who bought between 2005 and the end of 2008 are said to be in negative equity, according to research by the Council of Mortgage Lenders (CML).
A further 600,000 homeowners have just five per cent equity, and in total an estimated two million UK mortgage borrowers would not be able to raise a ten per cent deposit from their equity should they decide to sell their house.
According to data from Moneyfacts.co.uk, in February 2009 there were less than 100 mortgages at 90 per cent and just ten at 95 per cent - meaning two million homeowners have no option but to stay put.
The CML research, however, claims high levels of homeowners in negative equity should not be a reason to panic.
The body representing the mortgage industry says, of the 1.5 million homes that faced negative equity in the 1993 recession, most "sat tight" and recovered their position.
The CML estimates two-thirds of those in negative equity face only modest shortfalls of less than ten per cent - the equivalent of £6,000 for those first-time buyers with negative equity and £8,000 for other homeowners.
However, there are some facing as much as £37,000 of negative equity.
The Financial Services Authority (FSA) earlier this year predicted as many as two million people could face negative equity - but the CML defended its figures stating it was looking at people here and now in trouble and trying counter suggestions that negative equity automatically meant housing problems.
A CML spokesperson said: "Although having negative equity is unpleasant, it is a notional problem.
"It is not a problem unless people have reason to move. They can still meet their financial commitments."
She added those in negative equity should take advantage of low interest rates to increase their equity by overpaying on mortgages.
Bob Pannell, CML head of research, said: "Where people needs to move house for job or other priority reasons, lenders can often be flexible to existing borrowers with low or negative equity, as long as their financial position is sound and they have a good payment track record."
He added: "Otherwise, sitting tight and building up savings or overpaying on the mortgage are the strategies most borrowers are likely to adopt.
"It should be easier for households to rebuild their equity position than in the early 1990s, as low interest rates on their mortgage can help them to save or overpay more quickly."
- Tags:
- news ,
- remortgage advice
Comments
Newsletter sign up