by Mark Johnston
Negative Equity in 2013.
The national average house price fell by around 20 per cent between late 2007 and 2009.
Nearly six years on from the housing market crash and it seems that most property is worth substantially less.
House prices falls can leave home owners who hold mortgages with little or no equity in their properties. This can then leave borrowers with unsustainable burdens of debt, meaning that they are unable to move and also it restricts their options to remortgage on to a better rate.
With house prices stalling over the last two years, home owners have been unable to build up equity to fund their next move.
Nitesh Patel, housing economist at Lloyds banking group, said “house prices have been falling or flat for the past four years and as a result many are still in a very low equity position”.
Recent data has shown that since 2007 those most exposed to negative equity are borrowers who obtained high value mortgages that were commonplace before t he credit crunch, as they are the most at risk from declines in property prices.
Negative equity occurs when the value of a property used to secure a loan is less than the outstanding balance of the mortgage.
Therefore negative equity creates a major problem for home owners as they can not sell their home with out owing large sums to their lenders.
The Financial Conduct Authority (FCA) estimates that as many as 630,000 families in Britain could be in negative equity.
Although the Council of Mortgage Lenders (CML) recently estimate the figure to be around 800,000 home owners.
Lloyds TS’s third annual second stepper report revealed that around 61 per cent of those home owners who wanted to move up the property ladder in 2012 were unable to do so due to their property being in negative equity.
These figures however are less severe than those recorded after the property crash of the early 1990s when negative equity peaked at 1.6 million households.
However, Martin Wheatley, chief executive of the Financial Conduct Authority (FCA), suggests that “when interest rates rise, it may become much more of a problem”.
Campbell Robb, chief executive of the housing and homelessness charity, Shelter, says “the impacts of negative equity can be devastating. The past few years have left many people in very difficult circumstances they would never have foreseen”.
Many home owners in negative equity feel that they have been left to fight for themselves in a difficult property market as it seems that government initiatives have so far just been focused on first time buyers.
Other home owners have said that they believe that it is now actually harder to move up the ladder than to get on it in the first place.
Miles Shipside, director of Rightmove, the property website, said “ second steppers are the ugly duckling of the housing market. Overlooked for government incentives and struggling to protect their equity if they bought near the peak”.
Nick Pearce, director of the Institute of Public Policy Research, a think tank, added “rather than further pumping up house prices and exposing more people to the possibility of negative equity if prices do, in time fall, politicians need to set out boulder steps that would really get Britain building”.
Story link - Negative Equity in 2013
Related stories to : Negative Equity in 2013