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Negative numbers

The Council of Mortgage Lenders’ revelation that nearly a million homeowners are now in negative equity is more grim news for the already frozen housing market.

If 900,000 people are in negative equity, albeit to a minor degree, they are unlikely to be moving home any time soon, which would see their losses crystallised.

Instead, borrowers will be forced to sit tight and try to pay down their debts while interest rates are low, but with further house price falls of up to 10 per cent forecast, getting back into positive territory could be something of a moving target.

John Charcol senior technical manager Ray Boulger says the problem will affect far more people than the headline figure of 900,000:

He says “In its notes, the CML admits there are another one million people with 10 per cent or less equity, and I think they are playing down the significance. So that’s two million people who cannot get a mortgage right now. Add to that the self-cert and sub prime borrowers who would not be able to access credit – you could surmise that as many as three and a half million existing homeowners that are unable to remortgage right now.”

And negative equity adds to the wider problem of mortgage exclusion, says Moneysupermarket.com head of mortgages Louise Cuming.

She says: “Negative equity is a serious business, but what is more worrying is that you don’t need to be in negative equity to be excluded from the mortgage market.”
She says that for those with only have a 10 per cent deposit or less, just 5.6 per cent of mortgage products are available to them.

The CML says it released the data to prove the market isn’t too badly affected by negative equity, as it says there are 11.7 million mortgages in the UK, so the figure represents just 13 per cent of homeowners.

But Boulger says when you consider that there are 10.5 million residential mortgages in the UK then these are worrying figures indeed – his calculations reckon as much as a third of UK mortgage borrowers are stuck. “This has some big social consequences,” says Boulger.

But BestInvest head of mortgages Peter O’Donovan says the data needs to be put into context: “In the grand scheme of things 900,000 isn’t that many home owners, and negative equity is really only a problem for people who need to move right away.

“Many of those 900,000 will be on pretty low standard variable rates right now, so those borrowers will be in a pretty good position in the short term. Only when SVRs start to rise will they be in danger, but by then higher LTV mortgages will have hopefully returned to the market and they’ll be able to get a new deal.”

What do you think of the numbers and how they will they affect the various players in the mortgage market from borrowers to brokers to lenders? Let us know by commenting below.

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