At least one and a half million people who bought in the last five years are caught in the trap, created by the slump in property prices. A new survey of 'negative equity' - the gap between the market value of a home and the size of the owner's mortgage - shows that 27 per cent of those who bought property between 1987 and 1991 were caught in the debt trap at the end of December. This compares with 21 per cent in October and 11 per cent in October 1991.
The latest information on the depth of the property recession comes with the Treasury under Whitehall pressure to produce new measures to relieve the housing market in next month's Budget.
The figures, from a Newcastle University research team, are based on building society mortgage records and Halifax Building Society bulletins of house price movements. The team said its 'conservative estimate' of total negative equity had risen from pounds 2.68bn in October (when it prepared a report for the Joseph Rowntree Foundation) to pounds 3.7bn in December - a 38 per cent increase.
Daniel Dorling, from the university's Housing and Society Research Group, said that the most striking feature of the new figures was the spread of negative equity to the North. The largest percentage increases were in Scotland and the North of England. In Greater London, which earlier bore the brunt of the collapse in the property market, the number of borrowers with negative equity remained unchanged because house prices were static in the last quarter of the year.
Nevertheless, about 40 per cent of the people in London and the South-east who bought after 1987 owe more than their homes are worth. In Scotland, where prices began to fall recently, only 6 per cent of borrowers had negative equity in December.
At first, the debt trap hurt those who bought in 1988 and 1989 at the height of house price inflation. But, because of the length and severity of the recession, people who moved in 1987, before prices reached a peak, have been caught as well. So have those who bought after prices began to fall in 1990.
'The most significant rises (in negative equity) are occurring for people who bought just over a year ago when headlines in the newspapers read 'Now is the Time to Buy',' Dr Dorling said.
He added that the people most likely to be caught with negative equity were not 'unlucky yuppies' but buyers who had never made money out of housing before, and therefore had a large mortgage, and thosewho had bought in poorer areas.
Even if prices were bottoming out in the South-east, the housing crisis would not disappear, Dr Dorling said. 'Just as the house price crash has taken five years to travel from London to Glasgow, so too the recovery - when it comes - may well take just as long to work its way across the country.'
The Government's main scheme for stimulating the housing market, announced at a cost of pounds 750m in the Chancellor's Autumn Statement, has allowed housing associations to buy 17,000 homes for rent. John Major hinted last week that a new package could be on the way.
MORE than half of Tory backbenchers think that Norman Lamont should quit as Chancellor after he delivers his Budget next month, according to a poll by Channel 4's Week in Politics. Of 83 backbenchers, 44 said he should go. Michael Howard was the favourite successor with 20 supporters. John MacGregor and Michael Portillo polled 14 and 13 votes respectively.Reuse content