YOU home Blog
The YOU home Blog
1m (one in ten) homeowners now in negative equity but amounts are relatively small
by Adrian Black,
9 months ago
A recent Bank of England survey estimates, that as a cause of the recent housing slump, about one in ten homeowners are now in negative equity. The report estimates that between 7%-11% of UK owner-occupiers with a mortgage owed their lender more than their property was worth.
Today's number, which equates to between 700,000 and 1.1m homeowners, is the highest figure since the previous housing crash in 1995. About 200,000 buy-to-let investors are also in the red.
The study suggests the situation may be more severe this time round as the fall in prices was both larger and quicker than in the 90s, leaving borrowers with less time to make repayments and avoid the negative equity trap. The study comments that prices tumbled 19% between the third quarter of 2007 and the first three months of this year, but it took almost six years for them to fall 15% by 1995. We feel that like for like property prices have tumbled further, possibly by up to 25% to 30% already, and the indices are lagging the market.
Most households in negative equity at the start of this year were there by relatively small amounts, the report found. Data shows that for households suffering negative equity between 73-78% of households had less than £15,000 of negative equity and 56-65% under £10,000. We believe the reason for this is the rapid price rises increases prior to the fall and homeowners are owning the same property for a longer period of time so have built up a useful equity cushion. Lots of information about property prices and market activity back to 1995 for your local area in Bournemouth, Christchurch or Poole can be found at http://www.youhome.co.uk/you_know/start.
The negative equity hangover will hold back some buyers – but for those buyers without properties to sell or who are trading up with equity or cash it could be a great time to buy. One thing is for sure – when banks start lending again or start to increase their Loan to Value (LTV) ratios property values will rise again.
Published 2009-06-12
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