Upto 1.7 Million Brits Could Be Facing Negative Equity
About 1.7 million britans could be pushed into negative equity in the next year should house prices keep falling at their current rate, a report claims.
The credit ratings agency Standard & Poor’s (S&P) says house prices could still fall by a further 17% in the coming year.
That means 14% of all mortgage holders in the UK would find their homes were worth less than their mortgages.
House prices have been falling amid a credit crunch that has seen lenders cut the number of mortgages they offer.
“The downward trend in UK house prices now seems well established, and we expect prices to continue falling in the near term,” said S&P.
Downward trend?
Analysts at the ratings agency specialise in assessing the credit worthiness of organisations trying to raise money by issuing bonds.
They looked at a sample of two million outstanding mortgages and estimated that the average borrower has a loan worth 54% of their property’s value.
But about 70,000 households, or 0.6% of all UK borrowers, are already in negative equity.
S&P expect that number to rise sharply if prices keep on falling.
The sort of borrowers who are most at risk, the ratings agency believe, are those who have borrowed to become landlords in the buy-to-let market, or who were sub-prime borrowers, before lenders stopped lending to them altogether.
Sub-prime borrowers are people who have poor or non-existent credit histories.
In June, the investment bank Morgan Stanley said that two million households were at risk of owing more than the value of their homes if house prices fell 20% by 2010.
Thousands of new UK homeowners are facing negative equity
According to a CACI survey for the Daily Telegraph, one in eight of 1.2 million who bought a property, since then, owe more than their house is worth.
If a house loses its value is not necessarily a problem unless the owner has to move, re-mortgage, or can not pay the mortgage.
UK prices fell by 0.9% on average in June, according to recent figures nationally.
The increased risks
The CACI analysis also suggests that the holders of 360,000 mortgages could be negative equity in late 2008 if housing prices drop 20%.
A recent BBC report - based on data from the Council of mortgage lenders - revealed that more than 23,200 people who took 100% of mortgages in the year and March 31 could face negative equity.
In a rising market banks are willing to pay 100% of mortgages as there is little risk of not getting their money back.
But as prices have fallen, the risks have increased and lenders have been turning away borrowers if they do not have a deposit.
Last week Nationwide said house prices fell for the eighth month in a row in June, with prices now 6.3% lower than a year ago.
It said that the average home now costs £172,415 and is £13,629 cheaper than at the top of the market in October last year.
