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June 24, 2009    

Negative equity afflicts “prime” homeowners

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by Gill Montia

Northern Rock is leading the field in “prime” mortgages that have fallen into negative equity.

A new report from ratings agency, Fitch, reveals that almost one in six households at the upper end of the UK property market have home loans that exceed the value of their properties.

In the case of the state-owned Northern Rock, 32% of its Granite prime-loan book is in negative equity.

Fitch goes on to warn that nearly a quarter of all prime borrowers could end up in this position.

Such a scenario would involve a further 14% fall in property, prices taking the peak to trough decline to 30%.

Prime borrowers, typically with good credit histories, make up around 25% of the UK home loans market and Fitch points out that while negative equity does not necessarily result in arrears, borrowers in this category are at high risk of defaulting on repayments if they need to sell their properties and can’t.

In addition, negative equity means that households are prevented from securing the best deals when they come to remortgaging and are therefore more likely to see monthly repayments rise.

In a regional analysis, Fitch found Northampton, Nottingham, Derby and Peterborough to be the areas with the highest incidence of negative equity, while Scotland had the lowest proportion of borrowers in this position.

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Tags: , Derby, , Granite, mortgage book, , , Northampton, , Nottingham, prime


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