500,000 households in negative equity

Julian Harris
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CLOSE to half a million British households could be facing negative equity, according to survey released today by the Bank of England.

Between four and five per cent of mortgage holders owe more than the value of their properties, it was revealed in the Bank’s final quarterly bulletin of this year. There are 11.4m mortgages in the UK, according to the Council of Mortgage Lenders.

The figures remain considerably worse than prior to the recession. Approximately four times as many households face negative equity as in 2007.

And more people could fall into negative equity if house prices drop further.

Close to one in five mortgage holders have debts exceeding 75 per cent of the value of their properties, “not much changed” from last year, the report says.

House prices will fall by 2.7 per cent in the coming financial year, the Office for Budget Responsibility (OBR) forecast last month. Previously it had expected a rise of 2.3 per cent.

This month asking prices fell by three per cent, Rightmove revealed today. And asking prices could fall by five per cent next year, the property website estimates.

The number of first time buyers “remains relatively low,” the Bank said. Despite low house prices and low mortgage rates, modest wage growth and tight credit conditions continue to deter buyers from the market.

High deposit requirements are resulting in prospective first time buyers saving for the future, even thought interest rates remain low.

“Around a quarter of renters who reported they were increasing saving, were doing so to finance a deposit,” the report said.

However, the situation is positive in comparison to the US housing market, where roughly 11m households face negative equity.