The reduction, caused by rising house prices, brings the numbers of people in negative equity to the lowest levels since the first half of 1990, when the recession hit in earnest.
John Stewart, group chief executive at Woolwich, said yesterday: "The significant fall over the past year is good news for homeowners and is another sign that we are now experiencing a sustained recovery. Further rises of 5 to 6 per cent this year should remove more households from the negative equity trap."
Despite the rise in house prices, a core of about 250,000 hard-to-sell properties, mainly those bought at the peak of the boom in 1988, plus smaller studio flats were unlikely to escape from the negative equity trap in 1997, Woolwich said.
Separately, the Royal Institution of Chartered Surveyors said total output in Britain's construction industry was at its highest level since 1993. The construction workload grew by 2.4 per cent in the final quarter of 1996, the third consecutive quarterly rise.