Negative equity tumbles

Click to follow
The number of households in negative equity could halve by the end of the year, with the problem virtually eliminated by the millennium, suggests a report published today by the Council of Mortgage Lenders.

A rise of 5 per cent in property prices - within the bounds of some forecasts for the rest of the year - could more than halve the number of blighted households to less than 500,000. To eradicate negative equity, a situation in which a borrower's remaining mortgage is greater than the value of the property, would require an increase in prices of more than 30 per cent, says the report.

"Negative Equity: Outlook and Effects" was written by Rob Thomas, building society and housing market analyst at City bank UBS for the CML, the lenders' trade association.

The problem, which affected nearly a million households this spring, is concentrated in the south of England, where house prices are now rising fastest.

The report says that negative equity continues to hold people back from moving and therefore overall turnover in the property market. But, it adds: "The growth of lender schemes to help borrowers with negative equity to move has been such that any borrower with a clean payment record has an excellent chance of finding a scheme to suit them. This makes the claim that lenders are holding back turnover increasingly unsustainable. Yet the take-up rate on such schemes has been low, suggesting ... borrower reluctance to crystallise losses [rather] than inflexibility on the part of lenders."

However, thousands of low-income families who live in difficult-to- sell ex-council flats or starter homes have "hard-core" negative equity. The report calls for Government moves to help this part of the housing market.