August 25, 2011
A staggering 827,000 UK households were in negative equity in the first quarter of 2011, as the value of their home dropped to less than their outstanding mortgage.
New figures published by the Council of Mortgage Lenders (CML) show that 7% of mortgaged households would owe money if they sold at current prices.
However, the CML said that the number of households in negative equity is far lower than in the early 1990s when 1.6 million - nearly double the current number - households were affected.
"Negative equity is much less common than in the 1990s, and in the current cycle low interest rates and a relatively stable employment market are providing more options for borrowers and lenders in difficulty. There is no direct relationship between negative equity and mortgage payment problems,” said CML Director General Paul Smee.
"What typically causes difficulty for households is not a nominal fall in housing value but an unexpected change in personal circumstances, like the loss of a job or the breakdown of a family relationship."
Negative equity not only means that homeowners risk owing money to financial institutions if they decide to sell up, but experts also claim that the issues involved are directly behind the current stall in the housing market, as many homeowners cannot afford to move.
