UK negative equity claims exaggerated
Simon Ward
Post a Comment
Claims have recently been made that a 10% fall in house prices would plunge three million households into negative equity.
In the early 1990s housing market downturn, when house prices on the Halifax measure fell by 13% from peak to trough, negative equity is estimated to have affected about 1.5 million households. Loan to value ratios in the 1980s housing boom were higher than in recent years.
A 10% fall in house prices would return them to their level in spring 2006. Four million new mortgages – both loans for house purchase and remortgages – have been extended since March 2006. Fewer than one million of these mortgages will be on an original loan-to-value ratio of more than 90%. (Even Northern Rock kept the share of 90%+ LTV loans below a quarter in 2006 and 2007.) A significant proportion of this one million would remain in positive equity even if prices fell 10% (e.g. borrowers who purchased or remortgaged in 2006 on LTVs close to 90%).
In a recent speech, MPC member Kate Barker referred to Bank of England calculations indicating 5% of mortgagors would be in negative equity in the event of a 15% fall in house prices. (The analysis is based on the 2007 NMG Research survey of household finances.) With 11.8 million mortgages outstanding at the end of 2007, this implies about 600,000 households. With a 10% decline, the figure would be less than half a million.
View Printer Friendly Version
Email Article to Friend
Reader Comments