Negative equity affects 145,000 new homeowners

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by Lin Freestone

The research company CACI has analysed the 1.2 million people who have bought a home since the beginning of 2007 and calculated that one in eight are in negative equity. An estimated 145,000 owe more in mortgage payments than their houses are worth.

The research, commissioned by the Daily Telegraph, concludes that if house prices fall by as much as 20%, 360,000 households could be affected. According to Nationwide, house prices fell for the eighth month in a row in June, with prices now 6.3% lower than a year ago.

Figures from the Council of Mortgage Lenders show that 30,000 homeowners have taken out 100% mortgages since the start of last year. The CACI research shows a further 115,000 people took out mortgage deals of around 92% to 93%.

At the start of 2007, Northern Rock and some other lenders, were offering a 120% mortgage, enabling people to buy a property, pay for the fees and stamp duty, and undertake improvements without needing to pay any money themselves.

This was a very attractive package for many homebuyers, and was the only way some could afford to get onto the property ladder. These are the people now worst affected by negative equity.

These people will be trapped into their homes, unable to re-mortgage or move, and struggling to meet their mortgage payments. During the last period of negative equity in 1992 which affected 1.7 million households, more than 75,000 homes were repossessed by their lenders.

The areas that will be worst affected by negative equity are Sheffield, Nottinghamshire, Birmingham, Coventry, South Gloucestershire, Sheffield and Leeds. In London, the areas of Greenwich, Hammersmith and Fulham have all seen prices fall by more than 6% compared to a year ago.