Negative Equity from London Mortgage Advice Friday, 17th April 2009

About 900,000 homeowners are currently in negative equity says a new research article by James Tatch, senior statistician at the Council of Mortgage Lenders.

But, the research suggests that around two-thirds face 'modest shortfalls' of less than 10%.

And to put this into perpesctive, this equates to around £6,000 for those first-time buyers with negative equity, and £8,000 for other home-buyers.

The ability of affected households to move house will be reduced.

None the less, even in today's weaker market, the CML estimates that home-owners still have around £2.1 trillion of unmortgaged housing equity.

"Although negative equity has resurfaced as house prices have fallen, one big difference from the early 1990s downturn is that it is less concentrated among young, first-time buyers, and more evenly spread across wider age groups and those at different points on the housing ladder. So said Bob Pannell, CML head of research.

Commenting further he said,"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."