Negative equity risk for first-time buyers
by Gill Montia
mform.co.uk, the online mortgage company, is warning that large numbers of first-time buyers could be at risk of negative equity, following a substantial rise in the number of 100% mortgages taken out.
The broker estimates that between January 2006 and August 2007, 33,000 first-time buyers secured mortgages for the full value of their property, or in some cases even more, as a small number of lenders offer 100% mortgages plus an additional unsecured loan to help pay for legal costs, stamp duty and setting up a household.
For this group of property owners a small decrease in house prices can leave them owing more than their home is worth.
Hometrack, the property information website has already reported a 0.1% decreases in house prices for October, representing the first fall for two years.
Figures from the Bank of England also suggest the housing market is slowing down.
In September, 102,000 mortgages were approved for house purchases, the lowest level since July 2005.
At the same time, the Council of Mortgage Lenders (CML) is predicting a rise in both home repossessions and mortgage arrears during the remainder of 2007 and in 2008.
Francis Ghiloni, marketing and business development director at mform.co.uk has stated that: “In April this year, our research showed that there were 92 different 100% mortgages to choose from, but by October 1 this had increased to 160″.
According to the CML, the average first-time buyer puts down a deposit of over £13,000.
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