Negative equity blight returns to property market
MILLIONS of homeowners who borrowed a high proportion of the value of their property in the past three years could already find themselves in negative equity, according to new figures published this weekend.
Around one in eight buyers has borrowed more than 9 per cent of their property’s value in this period, according to the report by Fairinvestment.co.uk. [>
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But according to some market figures, house prices have already fallen more than 15 per cent in the past 12 months alone.[>
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Sharon Bratley, financial planner at Fairinvestment.co.uk, said: “Although the days of high LTV [loan-to-value] mortgages are now in the past, there are those out there who did borrow more than 90 per cent of their home’s value. [>
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“These homeowners could now be at risk of negative equity as house prices continue to come down, particularly if they bought their house within the past three years.” [>
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The study showed that 5 per cent had borrowed between 101 and 125 per cent and 3 per cent of mortgage-holders had borrowed as much as 125 per cent.[>
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These higher LTV mortgages were popular among first-time buyers who needed extra cash to pay stamp duty and furnishing bills.[>
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While Fairinvestment claimed the average mortgage loan-to-value borrowed by homeowners is much lower at 64 per cent, there are many still affected by plummeting UK property prices.[>
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The investment bank Citigroup said up to 200,000 people every month were falling into negative equity.[>
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And the Financial Services Authority (FSA) has predicted that if house prices fell 30 per cent from the level they were at the end of 2007, more than 2 million British homeowners would be affected.[>
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Bratley said: “While negative equity is unlikely to affect homeowners who can hang on until the market recovers, it can be concerning for those who need to remortgage when their current deal expires.”[>
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Any new valuation will show up the negative equity, and no company will lend more than the property is worth. This means homeowners will be stuck with their current lender, on its standard variable rate (SVR) of interest.[>
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“While these are low now, there is no telling when they will rise,” said Melanie Bien at Savills Private Finance. Any homeowner whowishes to move while in negative equity will need to find extra cash to redeem their mortgage.[>
Many borrowers have been opting to overpay on their mortgage in an attempt to combat negative equity, especially where their tracker mortgage rate has dropped considerably. Plus, overpaying a mortgage can reduce the term and save thousands of pounds in interest.[>
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According to figures from HSBC, over-paying £100 a month on a 25-year £150,000 mortgage at 3 per cent can reduce the term of the loan by 4 years and three months and save £11,842 in interest.[>
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Meanwhile, the FSA is urging those getting behind with their mortgage payments to act immediately. [>
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Its guide, What To Do When You Can’t Pay Your Mortgage, encourages people who find that a change in circumstances has made it difficult for them to meet their mortgage repayments not to panic but to get in touch with their lender.[>
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Debt charities offer free and independent advice to help consumers plan and solve their problems.[>
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The FSA’s moneymadeclear.fsa.gov.uk site also contains a budget calculator and mortgage calculator to help people work out what they can afford.[>
