Negative equity could afflict three million households

Analysts at Citigroup are predicting that negative equity could afflict three million (one in five) UK households as the property market downturn continues and the economy enters a recession.

The forecast is based on a 30% peak to trough fall in house prices and a current negative equity estimate of around 0.5 million.

The figure compares with a record 1.8 million households in negative equity seen during the early 1990s.

The research is at odds with the Bank of England’s recently published Financial Stability Report.

The report suggests that the number of households that might expect their mortgages to end up larger than the value of their homes could rise to 1.2 million, by 2011.

However, Citigroup believes the Bank’s research could be flawed because it relies on homeowners’ putting a value on their properties.

Despite plummeting house sales and leading house price indices showing an annual drop in average value of over 14%, homeowners are known to be reluctant to accept that their properties are worth less than a year ago.

To illustrate the point, property website Rightmove reported that asking prices in England and Wales actually rose by 1% in the four weeks to 11th October.

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