Almost 1 million homeowners in negative equity

A new report from the Council of Mortgage lenders suggests that over 900,000 UK homeowners are currently in negative equity to some degree.

The shortfall being experienced by the majority of homeowners is modest, equating to around 10% of property value; with a further significant amount of homeowners in very low positive equity.

Despite the vast numbers of homeowners currently in negative equity, the effects of the downturn are less significant than those seen in the last housing market recession in the early 1990s, when 1.5 million homeowners were estimated to have been in some degree of negative equity.

The spread of negative equity through the market is markedly different to the 1990s recession, when the majority of negative equity sat with young, first-time buyers. This time, the spread is more even between first-time buyers, movers and remortgage customers.

For the bulk of homeowners, negative equity itself is not a problem or a trigger or result of financial stress. As long as homeowners continue to make their mortgage payments, they will be able to ride out the period of negative equity – as was the case with the vast majority of homeowners in the 1990s.  It is only if financial stress becomes so great that the house needs to be sold that issues will arise. It is, however, vital for homeowners not to ‘voluntarily give up possession of their property’ when in negative equity, as homeowners remain liable for the shortfall debt on sale.

Bob Pannell of the Council of Mortgage Lenders commented on the report, highlighting the fact that homeowners are by and large better off than those in the same dilemma during the 1990s thanks to the current low interest rates,

“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.”