One million households face negative equity

Citigroup estimates that a quarter of a million UK homeowners are now in negative equity and that the number will rise to over one million by the end of 2009.

This would mean that nearly one in 12 property owners with a mortgage would be affected.

According to the US investment bank, UK property prices have fallen 7% since the autumn of last year and will see a decline of around 15% during the whole of 2008.

The bank’s UK economist, Michael Saunders, points out that the British economy is showing signs of a slowdown while inflation is rising, scuppering the chances of significant cuts in the base rate in the months ahead.

The Bank’s Monetary Policy Committee will meet this Thursday but is widely expected to leave rates on hold at 5% in June.

Mortgage interest rates continue to rise, as lenders remain short of funds and money market swap rates remain volatile, impacting on fixed-rate loans.

Meanwhile, interest only mortgages, which can be a lifesaver to cash strapped households, are becoming difficult to secure as lenders either withdraw from the market or demand that borrowers have a high amounts of equity in their properties.

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