Negative equity 'will hit over one million homes'

More than one million householders – about 10 per cent of all mortgage-holders – could soon find themselves with homes worth less than the debt outstanding on them, according to the Government's former adviser on the housing market.

The return of negative equity, last seen in the house price crash of the early 1990s, is predicted by David Miles, Managing Director in Economic Research at investment bank Morgan Stanley. Professor Miles' research puts a "bear case" of a 25 per cent decline in values over this year and next, with a "central" projection of a 10 per cent fall this year and 5 per cent next year: "House prices look vulnerable, and will likely fall further." That would push 1.2 million householders into negative equity totalling £164bn.

Anyone who bought a property this year is probably already in negative equity, while one in eight of the mortgage loans that were outstanding at the end of 2007 would be worth more than the property they are secured upon.

However, even such a correction would only take house prices back to where they were in 2006 and Professor Miles does not expect the UK to play out as badly as the early 1990s or the US now. Overall, the UK has about £1trn (£1,000bn) of mortgage debt and £2.5 trn of housing equity. Last night, the Chief Economist at the Bank of England, Charles Bean, pointed out that "only 5 per cent of mortgagers have less than 20 per cent equity in their home. So house prices would have to fall a long way before a lack of collateral became a constraint for most homeowners." And average prices have trebled since 1997.

In 2004, Professor Miles reported on reforms to the mortgage market. His latest work echoes gloomy predictions from other City analysts. The Halifax reported a 2.5 per cent drop in values last month. The credit crisis has choked off the supply of finance for mortgages and prevented the Bank of England's cuts in interest rates feeding through.

Ministers are concerned about the impact of a housing crash on economic stability and on the level of repossessions. A "summit" chaired by the Chancellor of the Exchequer with the Council of Mortgage Lenders will be held on Tuesday focussing on the 1.6 million homeowners coming off fixed rate deals during the next year. The Treasury and the Bank of England are also working out the details of a bail-out plan for the banks. Anything from £40bn to £150bn could be lent by taxpayers via the Bank of England.

The impact of a housing crash on the economy is difficult to predict, Morgan Stanley say, but they put the probability of a UK recession at up to 30 per cent.

In his Budget last month, the Chancellor reduced his growth prediction for the UK in 2008 from 1.75 to 2.25 per cent, above many independent forecasts.

And Mr Darling's forecast that the economy would bounce back to growth of 2.25 per cent to 2.75 per cent in 2009 looks out of line. The odds are shortening on the Government watching the economy slide into recession under a wave of negative equity in the run-up to the next election.

Top award for Independent writer

David Prosser, The Independent's deputy business editor, has been named Personal Financial Journalist of the Year at the Harold Wincott Press Awards. Mary Francis, chairman of the judging panel, said the prize reflected The Independent's hugely successful campaign against unfair bank charges. Ms Francis pointed out that articles highlighting unfair and potentially illegal unauthorised borrowing charges had prompted a Competition Commission inquiry and resulted in a court case brought by consumer groups against leading banks. Ms Francis said Prosser's articles on bank charges had been of "consistently high quality and they made a difference".

PROMOTED VIDEO
News
The data shows that the number of “unlawfully” large infant classes has doubled in the last 12 months alone
i100Mike Stuchbery, a teacher in Great Yarmouth, said he received abuse
Arts and Entertainment
The starship in Star Wars: The Force Awakens
filmsThe first glimpse of JJ Abrams' new film has been released online
Sport
Rio Ferdinand returns for QPR
sportRio Ferdinand returns from his three-game suspension today
News
The Speaker of the House will takes his turn as guest editor of the Today programme
arts + ents
News
people

Watch the spoof Thanksgiving segment filmed for Live!
Sport
Billy Twelvetrees will start for England against Australia tomorrow with Owen Farrell dropping to the bench
rugbyEngland need a victory against Australia today
Arts and Entertainment
The cover of The Guest Cat – expect to see it everywhere
books
Sport
Tyson Fury poses outside the Imperial War Museum in south London ahead of his fight against Dereck Chisora
boxingAll British heavyweight clash gets underway on Saturday night
News
i100 Charity collates series of videos that show acts of kindness to animals
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Austen Lloyd: Company Secretary

    Excellent Package: Austen Lloyd: EAST ANGLIA - SENIOR SOLICITOR LEVEL ROLE** -...

    Citifocus Ltd: German Speaking Client Specialist

    £Attractive Package: Citifocus Ltd: Prestigious asset management house seeks a...

    Citifocus Ltd: Performance & Risk Oversight

    £Negotiable: Citifocus Ltd: This is a varied role focusing on the firm's mutua...

    h2 Recruit Ltd: Sales Director - SaaS (SME/Channel) - £140,000 OTE

    £90000 - £140000 per annum + benefits: h2 Recruit Ltd: Are you a high achievin...

    Day In a Page

    Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

    Christmas Appeal

    Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
    Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

    Is it always right to try to prolong life?

    Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

    What does it take for women to get to the top?

    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
    Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

    Knitting pretty: British Christmas Jumpers

    Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
    French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

    French chefs campaign against bullying

    A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
    Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

    Just what you need on a New Year hangover...

    Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
    Cuba set to stage its first US musical in 50 years

    Cuba to stage first US musical in 50 years

    Claire Allfree finds out if the new production of Rent will hit the right note in Havana
    Christmas 2014: 10 best educational toys

    Learn and play: 10 best educational toys

    Of course you want them to have fun, but even better if they can learn at the same time
    Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

    Paul Scholes column

    I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
    Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

    Lewis Moody: Lancaster has made all the right calls – now England must deliver

    So what must the red-rose do differently? They have to take the points on offer 
    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game