One in seven homeowners could face negative equity

Standard & Poor’s (S&P) is predicting that one in seven UK homeowners will face negative equity over the coming 12 months.

Figures from Halifax and Nationwide in April show a 9% year-on-year decline in UK house prices and the credit rating agency expects a further slide of 17%, over the coming year.

Research by CACI shows that around 70,000 homeowners are already in negative equity; the company calculated that 145,000 mortgage holders had entered the state by the beginning of July.

According to S&P, for every further percentage point decline in house prices, a further 0.5% to 1.5% of borrowers (around 60,000 to 180,000 people) could enter negative equity.

The agency also expects 1.7 million homeowners to get into severe financial difficulty in the coming year.

Homeowners with a relatively small amount of equity in their homes and those with poor credit histories are most at risk, as remortgagers in either or both of these categories face sharp rises in mortgage costs.

The credit crisis has left lenders choosy about borrowers. They now keep their most competitive deals for those with 25% or more of equity in their homes.

Meanwhile, sub-prime lenders have either withdrawn from the market altogether or drastically reduced their offerings.

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