It’s every houseowner’s worst nightmare - and it’s official now: more than a million households could fall into negative equity if the housing slump continues, the Bank of England said today.
Growing numbers of home owners could be forced to sell their properties at a loss, as the property downturn gathers pace and vendors run out of options.
The scope of the negative equity nightmare could be massive. The BoE said that a 15 percent drop in prices from their October 2007 peak would leave one in 10 homeowners with outstanding mortgage debt worth more than the value of their home. Earlier this week the Centre for Economics and Business research predicted that the average cost of a UK home will fall up to 40,000 pounds by the end of 2009.
First-time buyers are among those hardest hit and buy-to-let landlords may fall behind on mortgage payments or may be forced to sell at a loss as lending dries up.
And if that’s not gloomy enough - two further sets of figures provided more bleak news for the housing market on Tuesday.
The Financial Services Authority said the number of home repossessions in the second quarter rose to 11,054 from 9,172 in the previous three months. And according to the Land Registry, the average price of a house in September was 168,814 pounds, down another 2.2 percent on the month, a far cry from around 200,000 pounds seen at the peak last summer.
How have you been affected by the downturn in the housing market? Have you even been affected by negative equity, either now or in the past?
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9 comments so far
We bought our house when we arrived back from South Africa 3 years ago we took out a 100% interest only loan and we are paying £1500 a month which is crippling us we cannot sell the house as it is £35000 valued at what we paid for it….Wish we could just hand the keys back and rent somewhere ….
- Posted by Janice CrowderUnlike Janet, I rented because I could not commit to such a huge mortgage obligation at levels of recent years, pushed to extreme heights due to the flow of cheap easy money.
Janet obviously thought the price she paid was worth it. If she does hand back the keys, maybe I’ll have opportunity to buy a house at a price which reflects some value and prevailing economic conditions.
- Posted by DSWhy is the £1500 per month repayments crippling Janice? Sure her repayments might have gone in the last 3 years but everyone knows that interest rates can go up as well as down so a sensible person factors that in to their calculations when they first take out a mortgage. Of course the bank should never have lent her 100 pct in the first place because it’s obvious that any fall in house prices will immediately put her in negative equity. But she could have worked that out for herself too.
- Posted by Richard Thomsonnegative equity is only an issue if you are selling your property. Interest rates will come down dramatically in the near future thus making mortgage payments more affordable. The best thing to do is not panic, tighten the purse strings and ride it out.
- Posted by MarkIt is high time that the public looked upon their property purchase as a HOME and not a vehicle of investment. The posting by Mark is spot on.
- Posted by CoatesI think to call it “every houseowner’s worst nightmare” is way over the top. What about 6 feet of floodwater in your living room (with no insurance) or house gutted by fire (with no insurance), to name but two obvious examples of far more serious events? Come to think of it, I wouldn’t put negative equity very high up the list of nightmares at all. Put a bit of lead in your pencils.
- Posted by MatthewNobody but nobody questioned the unearned money for nothing 10 - 20 - 30 % increases in the boom years. If you take a risk you have to be prepared for the downside as well as the upside. I have absolutely no sympathy for those who did buy to let who are now coming unstuck. Yep hand the keys back. But the deficit should be added to their existing mortgage or their homes repossessed to cover the shortfall. Buy to let speculators caused the boom in house prices. Tax payers and share holders shouldnt be bailing out reckless speculators in the buy to let market place. I do however have sympathy with first time buyers however.
- Posted by paul jacobI whole heartedly agree with Mark’s comments, and as someone who works in the industry have first hand experience of the nightmare the negative equity issue raises. However, as long as the banks continued to lend, the more the consumer would buy in, and the consumer themselves need to take a more active and intelligent approach to their finances. If they did, then when things did go wrong/against them, then I can see no reason why they shouldn’t complain, but as it is, and from personal experience in dealing with this, it seems that the homeowner would sooner blame anyone else, rather than take responsibility for the problems they are in for themselves, and then expect those same people to help bail them out.
- Posted by Dave CherryAs for Matthew’s comments, why anyone would have a property and not insure it then that just stinks of madness, are these the same people that drive a car but don’t worry about tax or insurance? (besides if there is a mortgage on the property the lenders themselves may have an issue with no insurance in place, to protect the building itself). If this is a cost issue, it comes back to consumer ignorance, and an inability to budget, and I therefore have no sympathy.
We all generally make our own beds, and we should therefore sleep in them, and for all those shouting, screaming, and blaming everyone else, hush up, I for one need my sleep.
There are some who do fall foul of this for which some sympathy is due - the first time buyers. These are generally younger people, often with their own young family who are scrimping to afford their own house as they can see the benefit of owning a property rather than paying out as much, if not more, to live in a place and never have anything they can call their own.
Houses are a nice way of “feeling” well off but, unless you can trade down market, they are never a way of making money and should not be considered as such unless you are a housebuilder. Even they are struggling though.
Why do we have an obsession with “negative equity”. It is, as has already been said, only an issue if you NEED to move house. Most of us do not, we want to move to better ourselves - we should learn to live within our means first.
- Posted by Richard