1.7 million at risk of negative equity

Wednesday, 30 July 2008 12:00 AM

As many as 1.7 million UK homeowners could be placed in danger of negative equity on their properties if house prices continue to fall at their present rate.

According to figures from Nationwide and Halifax house prices are already falling at between 6.1 and 6.3 per cent annually.

This could leave millions with properties worth less than the value of loans secured upon them, according to the latest research from Standard & Poor's (S&P).

The rating agency, however, estimates prices could fall by as much as 17 per cent this year, leaving as many as 14 per cent of all mortgage holders in the UK exposed to negative equity.

Those who purchased their property at the height of the boom, during 2007, with high loan-to-value (LTV) ratios are likely to be most at risk of exposure.

"The downward trend in UK house prices now seems well established, and we expect prices to continue falling in the near term," explained S&P.

However, the prediction of a 17 per cent fall is ahead of other estimates from the industry.

Halifax, for example, presently expects average property prices to fall by nine per cent over the course of 2008, while analysts at Global Insight expect falls of around 15 per cent, followed by a 12 per cent fall in 2009.

Following examination of some two million outstanding mortgages in the UK concludes 70,000 properties are already in negative equity - some 0.6 per cent of the housing stock.

It is this number which is expected to rise as property prices continue to fall. With demand constricted by the lack of mortgage finance, demand has been severely curtailed in the market, allowing average prices to fall.

Also thought to be at risk are borrows who have taken loans to become landlords in the buy-to-let market, or who were subprime borrowers, before lenders stopped lending to them altogether.

Chris O'Toole

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• uk property news