BoE: House price falls put 1.1m in negative equity

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by Kay Murchie

The Bank of England’s Quarterly Bulletin Report has revealed that the fall in house prices means between 700,000 and 1.1 million UK homeowners are in negative equity (a mortgage worth more than their property).

According to the Bank, “around 7% - 11% of UK owner-occupiers with mortgages were in negative equity in the spring of 2009.”

However, the bulletin highlights that “there is no data which accurately measures the scale of negative equity.”

However, it must be noted that negative equity only becomes a problem when people are forced to move. Those who are able to stay put in their home will benefit in the future when the market starts to stabilise.

The Bank also believes that negative equity may have exaggerated the speed with which the UK economy fell into recession and it can also bring about a situation that can “discourage households from borrowing and spending”.

The bulletins states that “large losses on mortgage loans and associated securities can erode banks’ capital positions, affecting both lenders’ willingness and ability to lend and, in extreme cases, their solvency.”

Finally, and on a positive note, figures show that the level of mortgage arrears and repossessions have been much less than the housing market crash in the early 1990s.

This is primarily due to historically low interest rates which have meant homeowners’ monthly repayments have been cut drastically.