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Negative equity haunts four million homeowners

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by Gill Montia
Negative equity haunts four million homeowners

Research involving 60,000 UK homeowners has led to claims that almost four million households are already in, or close to, negative equity.

In terms of UK mortgage holders, the figure equates to one in three, which is double the number seen during the housing market downturn of the 1990s.

Research firm, GfK NOP, found that homeowners aged between 25 and 34 who have taken out high loan-to-value mortgages since 2005 are most at risk of having a mortgage larger than the value of their property.

The analysis, which is gloomier than that of other commentators, used mortgage data collected from respondents alongside the Halifax house price index, which showed a 17.2% decline in the average value of a home during 2008.

By way of comparison the Financial Services Authority warned earlier this month that one in five homeowners could find themselves in negative equity as the recession deepens.

In its Financial Risk Outlook report the regulator stated that UK house prices could potentially drop by as much as 30% from their 2007 peak, leaving 2.5 million mortgage holders in negative equity.

Around 500,000 of this number would be people with buy-to-let loans.

On a positive note, it should be remembered that a period of negative equity can be ridden out with no harm done if a homeowner has no need to sell and is not in danger of repossession.

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News posted: February 27, 2009

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