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A Negative Equity Boom

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The number of mortgage borrowers in negative equity – those whose house is worth less than the outstanding balance of their loan – is currently estimated at 827,000.  This is one legacy of the fall in property value since the market reached its peak in 2007.  Those that bought, or remortgaged at the boom time could well now find themselves in this position; particularly first-time buyers who put down a small deposit. 

Negative equity and mortgage arrears are not directly linked, but negative equity can make it very difficult for people to move home.According to the Council of Mortgage Lenders (CML), the problem is not as widespread as it was in the property crash of the 1990s; then, an estimated 1.6 million households were affected. 

In fact, the current crop of 827,000 represents fewer than 8% of all mortgage holders.  Half of the negative equity cases represent loans that were taken out in 2007, and 39% are first-time buyers.  The problem is most widespread in the areas where house prices have fallen the most; Yorkshire, Humberside, Northern Ireland and the north-east of England.The CML countered its negative data with a positive spin on just how much equity is contained in the UK housing market.  It estimated that those who own their homes outright without a mortgage, own property worth £1.43tn. 

Also, nearly half of those who have a mortgage, have one that is worth less than 70% of their home’s value.  A further quarter have mortgages worth between 70% and 90% of their homes.

 

Repossessions Kept Down by Low Interest Rate

 

A total of 9,000 homes were repossessed in the second quarter of the year, bringing the total for the year so far to 18,100.  The CML has predicted that a total of 40,000 people will lose their homes this year, and as the economy continues to struggle, its view has remained unchanged. 

The Bank of England has held this historically low base rate of interest (0.5%) for more than two years, and it is this, along with a more stable employment market, that the CML has cited as the reason for repossessions being slightly lower than expected.  Mortgage arrears have also stayed largely unchanged during the second quarter of the year.  Pessimism reigns though; 45,000 repossessions have been predicted by the CML for 2012.