Negative equity looms for 23,000 homeowners
by Gill Montia
The Council of Mortgage Lenders (CML) estimates that up to 23,000 of the homeowners who borrowed 100% of the purchase price of their properties in the 12 months to the end of March, could face negative equity.
As property prices continue to fall (the Halifax recorded a 2.4% drop in May), the number of people whose mortgages outsize the value of their properties will rise.
According to the CML, around 3,000 homeowners who bought properties in London during the period are at risk.
The era before the credit crisis left banks and building societies strapped for cash, mortgages of 100% or more were commonplace.
Lenders were prepared to include money for setting up home and paying fees in some mortgage products, on the basis that house price inflation would continue and property values would soon catch up with even the 110% mortgage offered by Northern Rock.
Currently the 23,200 people who took out 100% mortgages in the year to the end of March represent only around 2.5% of the mortgages secured during the period.
However, falling house prices mean that many more could see their outstanding mortgage balances rise above the value of their properties.
Meanwhile, news on the overall UK property market is grim with the Royal Institution of Chartered Surveyors reporting a 32% year-on-year decline in house sales during the months of March, April and May.
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