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Negative equity haunts 1.2 million homeowners

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by Gill Montia

Morgan Stanley, the investment bank, is predicting that UK house prices will fall 15% over the next two years, leaving 1.2 million homeowners in negative equity.

For anyone in negative equity, mortgage debt exceeds the value of their home, making it difficult to move.

Homeowners who fall into arrears with their mortgage payments can be repossessed and left with thousands of pounds worth of debt.

Large numbers of first-home owners could be badly affected because in recent years many have taken out loans to cover 100%, or even 125% of the cost of their properties.

Should the bank’s estimate of a house price slump be understated and a fall of 25% occur, over two million homeowners would face negative equity by 2010.

On the 15% estimate Morgan Stanley calculates that £164 billion of negative equity would be created and around 10% of all UK mortgages affected.

However, not all predictions for the UK property market are this gloomy.

Despite a record high proportion of its members reporting a fall in house prices in March, the Royal Institution of Chartered Surveyors is optimistic that an outright house price crash will be avoided.

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News posted: April 18, 2008

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