Negative equity rears its ugly head

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by Kay Murchie

Negative equity is rearing its ugly head again, this is when homeowners’ mortgages outweigh the value of their property.

A number of borrowers are taking out bigger loans and lenders are offering first-time buyers loans between 100%-125% of the value of a house.

For example, a first-time buyer could purchase a property for £152,000 but could borrow as much as £190,000. Until some of the mortgage was paid off or the value of the property increased, buyers would be in negative equity.

For many, the risk of borrowing to purchase a home with no deposit has been successful but with analysts forecasting a slowdown in house prices, together with a rise in interest rates, the gamble has never been greater. Interest rate payments for first-time buyers are the highest for 15 years.

Negative equity is not just affecting first-time buyers, older borrowers with household debts and credit card bills are under attack by lenders offering to consolidate all their debts into one loan – this could be anything up to 125% of the value of their home.

Negative equity was common in the nineties housing crash, approximately 1,500 houses were being repossessed on a weekly basis. However, negative equity, is viewed differently today, people are more at ease with debt and negative equity has arisen through money that has been spent rather than through a decrease in the value of their homes.

According to statistics, 6% of homeowners are struggling to meet interest payments.