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4.8% of Britain's homeowners are in negative equity – trapped in properties worth less than their mortgages, according to the latest data from the Council of Mortgage Lenders. Rupert Jones reports
Falling house prices have plunged more than 900,000 homeowners into negative equity, according to the industry body representing mortgage lenders.
The latest data from the Council of Mortgage Lenders, issued today, reveals the north of England has by far the highest proportion of people trapped in properties worth less than their mortgages. There, one in 10 owner-occupiers owe more than their homes are worth. By contrast, in East Anglia and Scotland it is one in 100.
The CML said its latest national estimate compares with the more than 1.5 million homeowners left struggling under the weight of their home loans following the early 90s housing market crash.
It pointed out that most of those in negative equity this time around face only "modest shortfalls" of less than 10% of their property's value – typically amounting to around £6,000-£8,000.
A new research article by James Tatch, senior statistician at the CML, suggests that 903,000 UK homeowners who took out their mortgages between early 2005 and the end of last year have some degree of negative equity. That equates to 4.8% of all UK homeowners. Perhaps predictably, those worst affected are people who bought their homes at the height of the property boom, during the spring and summer of 2007.
The CML's regional breakdown shows that an estimated 69,000 of the north of England's 749,000 homeowners – some 9.2% – are in negative equity. The figure for Greater London is 119,000, which amounts to 6.5% of the capital's owner-occupiers. However, the numbers affected in East Anglia and Scotland are estimated at 16,000 for each area.
The organisation said the overall scale and impact of the problem "needs to be kept in perspective", pointing out that, even in today's weaker market, UK homeowners are still sitting on around £2.1tn of unmortgaged housing equity.
"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. This is what most of today's borrowers with reduced or negative equity are also doing," it added.
Bob Pannell, the organisation's head of research, said one big difference from the early 90s downturn was that this time, negative equity was less concentrated among young, first-time buyers, and more evenly spread across age groups and those at different points on the housing ladder. He added that it would contribute to subdued property turnover, but otherwise should have few adverse effects.
"Where people need 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 said.
"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 90s, as low interest rates on their mortgage can help them to save or overpay more quickly."
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