MORE than one in 10 British homeowners have been plunged into negative equity, with their property now worth less than the value of their mortgages, the Bank of England will warn today.<br /><br />Writing in its latest Quarterly Bulletin, the Bank&rsquo;s analysts said that the collapse in prices since the peak of the housing market in autumn 2007 could mean up to 11 per cent of homeowners &ndash; or 1m households &ndash; have fallen into negative equity, levels not seen since the last housing downturn in the early 1990s.<br /><br />However, the majority of households are so far only suffering from relatively small levels of negative equity. Data from the Financial Services Authority (FSA) shows that 56 per cent of households affected had less than &pound;10,000 of negative equity.<br /><br />The implications of negative equity, set against a backdrop of a fragile UK economy, will depend crucially on the outlook for house prices and on factors that affect households&rsquo; ability to service debt, including interest rates and unemployment.<br /><br />While interest rates are set to remain low for some time, some economists expect a further 10 per cent drop in house prices, while unemployment is forecast to rise as high as 3m by 2010. The incidence of negative equity is therefore likely to increase.<br /><br />Negative equity discourages or restricts individuals from moving home in search of jobs &ndash; as selling up leaves owners out of pocket &ndash; exacerbating unemployment. The Bank says the impact of the financial crisis means rising negative equity will have had a larger impact on credit availability and demand than it did during the last property market downturn.<br /><br />There is no data that accurately measures the scale of negative equity, but Bank analysts have drawn together external estimates which indicate that the figure could range from seven to 10 per cent.<br /><br />Household surveys suggested a slightly lower figure of seven per cent in negative equity, the Bank said, but this is likely to be an understatement due to respondents&rsquo; propensity to overstate the value of their homes.<br /><br />More objective data from the FSA on the flow of mortgage lending indicates that about 10 per cent of owner-occupier mortgagors were in negative equity by the end of the first quarter of this year.<br /><br />An alternative estimate, using FSA data based on lenders&rsquo; mortgage book figures and the fall in house price of 20 per cent since the market peak, suggests that the percentage of UK owner-occupier mortgages in negative equity was 11 per cent by the end of the first quarter.<br /><br />In the US, the number of homeowners in negative equity was estimated to be nearly one in six at the end of 2008.<br />