First-time buyers 'fairly safe' from negative equity

First-time buyers who purchased their property before 2007 are "fairly safe" from negative equity.

Even those who took out a mortgage at 100 per cent loan-to-value (LTV) should be able to avoid the scenario, as prices have risen consistently since this time.

Indeed, it is only borrowers who have taken out a mortgage at 95 per cent LTV or more in the last year who could now be facing a tricky financial situation.

"By my calculations, and this is consistent with some of the key commentators on the mortgage lender's side, we believe that the only people that are at risk of negative equity are those first-time buyers that took out a 95 per cent loan-to-value mortgage in 2007," said Andy Pratt, spokesperson for mortgage advisors Alexander Hall.

This represents around ten per cent of borrowers who have taken out a mortgage in the last year.

"Anyone who's taken out a mortgage before that time – even up to a hundred per cent – will actually be fairly safe because of the increase in house prices," said Mr Pratt.

However, the fear of negative equity is persuading potential buyers to remain clear of the market.

"It's certainly a dent in consumer confidence, and there are a lot of people – home-movers and first-time buyers – who are taking a conservative view and deciding to wait and see what happens, which is obviously very understandable," said Mr Pratt.

"In that sense, it's creating a little bit of activity in the market, but it's unsure exactly what's going to happen.

"I think the majority of people who are experts in the UK economy or in the housing mortgage market believe that while there may be up to a five per cent correction, they don't think it's going to be a massive correction."