900,000 borrowers enter into negative equity, reports CML

Posted under News by Alan

Data released by the Council of Mortgage Lenders (CML) reveals that nearly 900,000 borrowers are in negative equity due to continuing fall in house prices.

After reaching a high in summer 2007, house prices in the market have plunged by 20%, leaving those with mortgages more than property value, with too little equity.

Negative equity poses a problem only when people are compelled to move. Those who can continue to stay in their homes will gain in future as the market starts stabilising.

CML figures indicate that borrowers from North are the worst affected, with 9.2% (over 70,000) of homes occupied by owners in the region falling in negative equity.

The number of those in negative equity in the South East is 150,000, equating to 5.7% of homes in that region. However, situation in Scotland is not that bad with only 1% of owners in negative equity.
CML recalls that 1.5 million borrowers had gone in negative equity during early 1990s housing slump, but recovered later. CML is expecting similar outcome for the present borrowers particularly in the backdrop of easing of situation due to lower interest rates.

Survey by the research group GfK NOP, conducted in February, had forecast negative equity for 5 million homeowners by the end of 2009, if down trend in house prices continues.

But these figures are termed as “a little extreme” by the Royal Institution of Chartered Surveyors. CML also called these estimates as alarming and implausible.