The number of home-owners facing negative equity rose by more than 90,000 in the past three months, reversing the downward trend set in the first half of the year.
The increase raises to more than 1.1 million the households whose mortgages are greater than the value of their homes. This figure is more than 20 per cent higher than for the same period last year.
Average levels of negative equity remain constant, at about pounds 7,000 for the country as a whole and pounds 9,500 in London and the South-east, according to a report published yesterday.
Woolwich Building Society, which published the survey, said the blight on property values affected regions differently, with the North of England, the East Midlands, Yorkshire and Humberside hit hardest.
Peter Robinson, managing director at Woolwich, said yesterday: "The rise in negative equity will maintain the feel-bad factor in the housing market.
"The Chancellor has the opportunity in his November Budget to stimulate the housing market, hopefully by targeting first-time buyers with enhanced benefits. Without some induced stimulation to house prices during the quiet winter months, negative equity could be afflicting many more households by early spring."
A separate quarterly survey by Halifax Building Society showed house prices fell by 1 per cent on the previous three months. They were also down 2.6 per cent on the same period last year.
About three-quarters of people facing negative equity are first-time buyers, most of them having bought their homes between 1988, the height of the boom, and 1991.
The total of negative equity in the UK now stands at about pounds 7.8bn, some pounds 600m up on the previous quarter.
Hilary McVitty, a manager at Woolwich, denied suggestions that mortgage lenders were seeking a return to a 1980s-style house price boom.
She said: "The figures on negative equity are a matter of concern, particularly at this point in the economic cycle."
Alliance & Leicester Building Society said yesterday it is to close 43 branches in the next six months, about 12 per cent of its network, with the possible loss of 200 jobs.Reuse content