Drops in house prices not devastating, says GE Money

3 July 2008 11:30 am

The average homeowner who purchased property in 2004 has an “equity cushion” of 48 per cent despite the recent drop in the market.

The average home purchased in 2000 with a deposit of £27,000 will only fall into negative equity if prices drop by 58 per cent, while a London property bought in 1995 has a cushion of 72 per cent.

GE Money head of mortgage marketing Gerry Bell says: “Over the past decade homeownership has delivered fantastic returns for many borrowers and we would need to see unprecedented falls in property prices for the average home owner to be severely impacted.”

Analysis shows that prices would have to fall by 19 per cent before a home purchased in the last year with a deposit on an interest only basis enters negative equity.

Bell says: “While we have witnessed depreciation in house prices over the last year, the fall in property values has been relatively modest compared to the significant inflation over the past decade or so.

“Ultimately the concern in the current marketplace is for the small number of borrowers who put down a very small deposit may now be feeling overstretched. However, for the vast majority of UK consumers, the historic growth in the market has provided a welcome cushion against these falls.”

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