One in five homeowners face negative equity

One in five homeowners could find themselves in negative equity as the recession tightens its stranglehold, the Financial Services Authority (FSA) has warned.

House prices could potentially drop by as much as 30% compared to 2007 levels, the FSA said, leaving 2.5 million mortgage holders owing more than the value of their house. This is around 21% of people with a mortgage.

Around 500,000 of these would be people who bought the property for letting.

The statistics were released in the FSA’s annual Financial Risk Outlook report.

Mortgage arrears and repossessions are ‘already significant’, the report said, and worryingly were on the increase when the economy was still stable.

“To date, mortgage arrears and repossessions have been rising among less creditworthy and buy-to-let borrowers,” reads the report.

“The problem is likely to become more widespread as the impact of the recession is felt by households via higher unemployment and lower incomes.”

Most concerning of all is the FSA’s conclusion that the scale and length of the economic downturn are ‘very difficult to predict’.

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