630,000 borrowers could be in negative equity
In the regulators first Risk Outlook it analysed the latest Halifax, Nationwide and Acadametrics property price indices to assess the numbers of borrowers currently in negative equity.
The report found that the north of the UK has been hardest hit with the Northern Ireland, the North East and Wales being worst affected.
The FCA said: “In the lead-up to the crisis, there was a growing perception that the capital value of homes would continue to grow, even though prices were out of line with underlying fundamentals.
“Given that house prices remain out of line with their fundamentals there could be further price falls particularly if economic or financial conditions deteriorate.
The FCA warned that the current situation could leave some homeowners with “unsustainable burdens of debt, unable to move and restricted in their options to remortgage onto better rates.”
Negative equity had affected around 1.1m borrowers in the early 1990’s with negative equity being mostly focussed on southern regions of the UK.