Negative equity looms for 14% of mortgage holders

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by Kay Murchie

According to Standard & Poor (S&P), if property prices continue to fall at their current pace, around 1.7 million people could be pushed into negative equity in the next 12 months.

The credit ratings agency said this represents 14% of all mortgage holders in the UK whose property will be worth less than their mortgage.

A report earlier this week from the Land Registry revealed that house prices have fallen for the tenth consecutive month.

S&P said that the downward trend in UK house prices now seems well established, and that it expects the trend to continue in the short-term.

Some analysts have been predicting falls of at least 7% this year while others have been predicting much higher falls.

Research from S&P found that around 70,000 households (0.6%) of all UK borrowers are already in negative equity.

S&P believe the types of borrowers who are most at risk are those who have borrowed to become landlords in the buy-to-let market, or who were sub-prime borrowers, prior to the credit crisis.

However, even homeowners with unblemished credit records will also be affected, with approximately 13% of ‘prime’ borrowers also being pushed into negative equity.

Investment bank, Morgan Stanley, recently said if house prices fall 20% by 2010, around two million households are at risk of negative equity.