First-time buyers at negative equity risk

Thousands of new homeowners are at danger of slipping into negative equity if the housing market suffers a fall, according to online mortgage specialist mform.co.uk.

The dramatic increase in the number of 100% mortgages being offered and the potential for a downturn in the market have left first-time buyers exposed, according to the organisation.

Estimates from mform suggest between January 2007 and August 2007 some 33,000 first-time buyers will have taken out 100% mortgages.

"Rising property prices has meant people need to borrow even more money to get the property they want and lenders have responded to this by dramatically increasing the number of 100% mortgages available," said Francis Ghiloni, marketing and business development director, mform.

"In April this year, our research showed that there were 92 different 100% mortgages to choose from, but by October 1st this had increased to 160."

Yet, there are risks associated with such products.

"However, if house prices fall, as some commentators predict, those homeowners with these mortgages are likely to encounter negative equity," continued Mr Ghiloni.

The situation is also unlikely to improve in the future.

Recently released research from YouGov finds 2.08 million people aged under 34 plan to apply for a mortgage over the next three years intend to borrow four or more times their income.

Furthermore, 828,000 of these plan to borrow five times their income, while 290,000 plan to borrow over six times.

The majority of these will be first-time buyers struggling to get on the housing ladder, who will again be placing themselves at risk of negative equity if there is a dip in the housing market.