Because of the collapse of London house prices, home- owners are suffering disproportionately from 'negative equity', in which the house is worth less than the mortgage, figures from the Association of London Authorities show. The worst affected areas are the deprived inner-London boroughs.
Eight per cent of the nation's 10 million mortgage holders are in London. However, 20 per cent of the 1.4 million home-owners with negative equity live in the capital and their share of the pounds 9bn national total is pounds 2.8bn. The average amount in London is pounds 10,000, compared with a UK average of pounds 6,428. Of people with mortgages in London, an estimated 35 per cent have negative equity.
The survey says negative equity is concentrated in London because of the massive fall in house prices in Greater London in the past five years. Of first-time buyers who bought in the first quarter of 1988, 79 per cent have negative equity. During that period London house prices fell by 24 per cent from an average of pounds 83,295 to pounds 63,675.
The worst sufferers are people in cheaper homes, since they had to borrow the highest proportion of the purchase price, often more than 95 per cent in the late 1980s.
'In London, such less well- off buyers made up a high proportion of the housing market in 1988-89, adding to the concentration of negative equity in the region. This group of buyers tends to be gathered in areas where government restraints on local authority spending have led to cutbacks in social housing.'
The proportion of first-time buyers who bought in the last quarter of 1988 and who now have negative equity is 90 per cent or over in Barking, Hackney, Lewisham, Newham, Tower Hamlets and Waltham Forest. By contrast, there are none in Kensington and Chelsea and only 23 per cent in Richmond.
The figures reflect movements in house prices. According to association figures, prices in Tower Hamlets fell by 67 per cent between 1988 and 1993 but by only 7 per cent in Richmond. In Kensington and Chelsea prices rose by 10 per cent.
Pete Challis, the association's chair of housing, called for measures in the Budget to stimulate the economy and get the housing market moving. 'The Chancellor, and those who lent irresponsibly in the past, should get together to establish a scheme which enables people to change their mortgage to rent and avoid a lifetime of debt.'
The survey supports recent research from the Henley Centre for Forecasting that suggests levels of negative equity are rising, mainly because of the large number of home- owners in the South-east, which has been worst affected by the fall in house prices.
The report says many homeowners will not see the value of their property rise above their mortgage until the turn of the century.
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