Borrowers Face Negative Equity Fears

Fri, 26 Jun 2009

Almost a quarter of UK homeowners could find themselves in negative equity if house prices continue to fall, a new report has warned.

According to analysts Fitch Ratings, one in ten borrowers already owe more on their home loan than their property is worth.

The group warned that this figure could soon rise to 23 per cent if property prices slide by a further 14 per cent, reaching a total decline of 30 per cent from their 2007 peak.

Fitch analysed 2.7 million prime mortgages in the UK – around 25 per cent of all outstanding home loans – and found 270,000 borrowers with good credit histories were now financially "underwater".

Ketan Thaker, a director at Fitch, warned that although prime borrowers were unlikely to default on mortgage payments purely because they were in negative equity, it reduced the options available to those who were struggling with debt .

He said: "Borrowers with equity in the property have options available to them in case of financial distress that borrowers in negative equity do not, for example sale of property, remortgaging, better availability and pricing of products, and the withdrawal of equity to fund temporary cash shortage, which could help avoid foreclosure."

The report also revealed that Northampton, Nottingham and Derby in the East Midlands were the worst affected cities with the highest proportion of borrowers who owe more than the value of their home (15 per cent).

In contrast, Scotland was found to have the lowest proportion of borrowers in this position equity, at 3.6 per cent.
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