Negative equity affecting one in six households with prime mortgages

Submitted by debt free editor on Wed, 24/06/2009 - 11:53

A report released yesterday by Fitch Ratings suggests that almost one in six households in the UK with prime mortgages are affected by negative equity.

The Fitch report suggests that one in ten households with an excellent credit rating have been left with mortgages that are worth more than the value of the property that they have bought.

Northern Rock, which was nationalised, has the highest number of previously prime loans in negative equity with 32% of mortgages affected. Other banks rescued by the taxpayer; Alliance and Leicester, Bradford and Bingley and Birmingham Midshires are all reported to have one in five mortgages in negative equity.

In Sunderland’s postcode SR1 43.7% of loans are in negative equity, by value, which converts to 28.1% of homeowners. The East Midlands are the worst area affected overall and has the highest proportion of  loans in negative equity while those in Scotland are the least affected, with around 4% of borrowers affected.

Ketan Thaker, a director at Fitch, has said " Borrowers with equity in the property have options available to them in case of financial distress that borrowers in negative equity do not” suggesting that although house owners are unlikely to default on mortgage payments purely because of being in negative equity, those affected have fewer options in cases of financial distress.

Andrew Montlake, a representative of Coreco an independent mortgage broker has advised: “Negative equity is only a problem if you have to move or remortgage, and for many homeowners they are not in this position and can hopefully-ride out the storm and wait for prices to rise again.”

The report showed that mortgage approvals are rising year on year- for the first time in over two years. More than 30,000 loans were approved for property buyers in May 2009.

Even if house prices begin to recover, the report says that large numbers of borrowers may remain in negative equity for months, or even years. The report warned that further falls in housing market prices could see more than one in three prime mortgages affected.