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As a result of plunging property prices, up to 1.5million homeowners could be lumbered with a mortgage of greater value than that of their houses.
Research carried out by Money Mail revealed that hundreds of thousands of homeowners are at risk of negative equity after putting down deposits of twenty percent or less. With no way of making exact estimates, leading economists predict that a fall in house prices could result in over a million people facing negative equity. In a catch 22 situation, many of these people could be unable to remortgage or buy another house without emptying their savings accounts, and reductions in equity means that they are unlikely to get a decent deal on their mortgage.
Halifax has exposed figures that show since the peak in 2007, house prices have plummeted by around twenty percent, with property prices dropping by £39,000. There has been a further fall of 1.4 percent, the North-East having suffered the most with a ten percent drop since August last year.
Lloyds Banking Group has been making the headlines recently, due to a £3.2million compensation fund being set aside for customers who have been mis-sold PPI’s. The company – which owns Halifax – is the biggest mortgage lender in Britain, and over 150,000 of its customers have negative equity. The Bank of England has warned that, if this figure was added to that of other banks and building societies, it could reach 350,000.
Ed Stansfield, housing economist for Capital Economics, can see the problem occurring very suddenly. He states that it could be a gentle fall to start with, followed by a sudden drop in equity leaving thousands of people with this problem.
Although there are no published figures for how many borrowers are at risk, the Bank of England statistics show that 4.4% of mortgages are now on houses which are not worth as much as their loan. In addition, just 6,000 borrowers with less than ten percent deposits were approved for a mortgage in the last months of 2010, whilst the whole year recorded a figure of just 2% for the same type of customers. Choose from the best remortgage deals at remortgage.com.
The biggest worry among financial industries is the fall of house prices, which will badly affect those with smaller amounts of equity. With these concerns coming to light, it stands to reason that less people will be financially prepared to take on a mortgage.

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