Mortgage debt exceeds value of many houses

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FOR NEARLY a million people in Britain, negative equity is proving the horrific flip side of the 1980s property boom.

As the slump in house prices continues, nearly two-thirds of first-time buyers who purchased property after 1988 in the South- east - the area hardest hit by the slump - now owe building societies more than their homes are worth.

Properties once considered sure investments are drowning homeowners in debt; the shortfall between mortgage and property value now averaging pounds 6,000. Negative equity is robbing them of control over their lives, preventing them from moving or taking new jobs.

Earlier this week the Bank of England estimated that if prices continued to fall at recent rates for the next 18 months, the number of mortgage holders owing building societies more than the value of their homes will increase to 1.6 million. Even if prices stabilised it would take three years of 10 per cent inflation to release those affected.

In addition, more than 300,000 people are now at least six months in arrears with mortgage payments and lenders repossessed more than 35,000 homes in the first half of this year. With prospective housebuyers understandably rattled by the fate of those who have gone before, the market is suffering acute paralysis.

Sean Holden, a television journalist, made a killing in the 1980s. He is now tasting the bad times. He and his wife Denise bought a flat in Brixton, south London, in 1986 for pounds 42,000. It sold for pounds 75,000 just 20 months later.

In July 1988, as property prices were peaking, they moved into an pounds 118,000 mews house in west London, believing it would also be an investment. They have since separated and would like to sell. Today estate agents say their home is worth pounds 90,000.

He said: 'We have lost all the money we made in the golden years but I don't resent that. It wasn't as if it was money I earned. But if I sold this place I would rent until I was sure the housing market was moving. I see no point in being tied to a place and paying money out on something that is not an investment.'

As property prices continue to fall, the gap between the value of Mr Holden's home and his pounds 86,000 mortgage narrows. In Lincolnshire the slump has been less pronounced but Paul Boultby's first experience of the property market has proved disastrous. He, his wife and his four children bought a former RAF house in Brookenby, near Grimsby, two years ago for pounds 27,500. Eight weeks before securing a 100 per cent mortgage from Barclay's Bank, he injured his neck at work and has not worked since.

The DSS pays pounds 21 a week towards his mortgage and arrears are now pounds 3,500. He says he cannot sell because his house is now worth less than his mortgage. The highest offer for his three-bedroom home has been pounds 24,000, which would leave the family with pounds 7,000 to clear in mortgage and arrears.

The situation is exacerbated by the recent sale of similar RAF houses in more desirable areas nearby for less than Mr Boultby paid two years ago.

Mr Boultby, a former bus driver, said: 'We used to live in a council house. I always wanted my own home but I would love to get back to renting now. We're in a real catch-22. We cannot see our way out of this and the bank cannot make up its mind about whether to repossess us or not.'