Negative equity not a problem

Today's news that there are around 900,000 home-owners currently with some degree of negative equity, the majority of these - around two thirds - face only modest shortfalls of less than 10% according to the Council of Mortgage Lenders (CML).

This equates to around £6,000 for those first-time buyers with negative equity, and £8,000 for other home-buyers and is a problem spread broadly across all age groups and those at differing points on the housing ladder.

The new research by the senior statistician at the CML shows that at the depth of the last housing market recession in 1993, 1.5 million households or more were estimated to have negative equity. Most sat tight, saved, continued to pay their mortgages and eventually recovered their equity position. And, according to the CML, this is what most of today's borrowers with reduced or negative equity are also doing.

While reduced and negative equity are likely to constrain the ability of affected households to move house, the overall scale and impact of this for the market as a whole needs to be kept in perspective - even in today's weaker market, the CML estimates that home-owners still have around £2.1 trillion of un-mortgaged housing equity.

The CML's head of research commented: "Although negative equity has resurfaced as house prices have fallen, one big difference from the early 1990s downturn is that it is less concentrated among young, first-time buyers, and more evenly spread across wider age groups and those at different points on the housing ladder.

"Negative equity will contribute to subdued property turnover, but otherwise should have few adverse effects for the majority of households affected. 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. 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."

I say "If you are affected by negative equity, and want or need to sell your property, then negative equity is a huge problem. If you do not have additional funds to use for a deposit ( and don't forget that deposits now been to be much higher that was required 12-24 months ago), it hits home hard. However, there are some additional ways to raise funds that can be used as a deposit. As ever, if this situation affects you, then I urge you to contact me to consider your options in a pragmatic way. My contact details are above on the right hand side."

21 per cent of borrowers at risk of negative equity

21% of UK mortgage holders borrowed a mortgage Loan to Value (LTV) of 90% or more - potentially putting them at risk of negative equity according to new research.

In a survey of 2,000 replies, it was found that although the average mortgage LTV borrowed by homeowners is 64%, 3% of mortgage holders had borrowed 125% LTV, 5% had borrowed between 101 and 125%, and 13% had borrowed 91 to 100% of the property's value.

This means that 21% of mortgage holders borrowed more than 90% of their property's value, which could give them an increased risk of negative equity - particularly if house prices continue to fall.

The Financial Services Authority (FSA) has predicted that if house prices fall by 30% from the level they were at the end of 2007, more than two million British homeowners will be in negative equity - this is more of a risk for those who borrowed 90% of the property's value or more, as according to some market analysts, house prices have already fallen by more than 15% in the last 12 months alone.

On a positive note, 19% of mortgage holders borrowed just 20% of the property's value or less, meaning they owned 80% of their home when they bought it.

A further 16% borrowed between 81 and 90% of their home's value, while another 15% borrowed between 71 and 80%. In total, 10% of Brits questioned had borrowed between 61 and 70%.

Commenting, the survey people said: "Our statistics show that, although the days of high LTVs are now in the past, there are a number of mortgage holders out there who did borrow more than 90% of their home's value.

"These homeowners could now be at risk of negative equity as house prices continue to come down, particularly if they bought their house within the last three years," she said.

"However, unless they are planning to sell up, negative equity is unlikely to affect homeowners who can hang on until the market recovers.”