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CML estimate puts 900,000 in negative equity

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by Gill Montia
CML estimate puts 900,000 in negative equity

The Council of Mortgage Lenders (CML) has published new research on negative equity in the UK housing market.

The Council points out that during the 1993 market downturn, 1.5 million households or more were estimated to be in negative equity.

Most eventually recovered their positions and a similar outcome is expected for today’s homeowners with mortgages larger than the value of their properties.

An article from the Council’s senior statistician, James Tatch, suggests that around 900,000 homeowners currently have some degree of negative equity, with around two-thirds facing a shortfall of less than 10% (£6,000 for first-time buyers and approximately £8,000 for others).

Only around 30,000 households have a shortfall of 20% or more.

In his study, Mr Tatch attempts to dispel the “myth” that there is “a strong causal link between negative equity and mortgage repayment problems”.

He asserts that payment problems are typically associated with unexpected expenses, reduced income and changes in household circumstances.

Negative equity does, however, prevent people from moving house, although the CML argues that the impact of this needs to be kept in perspective, even in today’s market.

The body’s head of research, Bob Pannell, comments: “Negative equity will contribute to subdued property turnover, but otherwise should have few adverse effects for the majority of households affected.”

He adds: “Where people need to move house for job or other priority reasons, lenders can often be flexible to existing borrowers with low or negative equity, as long as their financial position is sound and they have a good payment track record.”

Finally, the CML regards the outlook for today’s homeowners in negative equity as more positive than in the early 1990s because low mortgage interest rates present an opportunity to increase monthly repayments, or save.

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News posted: April 17, 2009

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