Fewer borrowers in negative equity

Sarah Davidson

October 30, 2012

Data released today updates the analysis of housing equity published in August 2011, based on data from the first quarter of last year.

It found the amount of unmortgaged housing equity held by borrowers has remained broadly unchanged since last year at around £800 billion, despite the weakness of house prices in the intervening period.

This level of equity compared to outstanding mortgage debt equates to an average loan to value ratio of 56%.

The number of borrowers in negative equity has declined by more than 100,000 (or 13%) since the first quarter of last year from 827,000 to 719,000.

The proportion of first-time buyers who have taken out loans since 2005 and are in negative equity has declined from 26% to 20% and around 90% of all borrowers taking out loans since 2005 hold some equity in their property, with more than half owning at least 30% of the value of the property and more than 80% holding an equity cushion of at least 10% of their home’s value.

The fall in house prices since their peak in 2007 has led to concerns about the amount of equity some mortgage borrowers have in their homes – particularly those who bought when prices were at or near their highest point.

House prices remain some way off that peak, which has reduced mortgage borrowers’ housing wealth to £1,850bn – down from around £2,100bn in 2007.

With little change in total mortgage debt outstanding since 2007, the decline in house prices has eroded the amount of free housing equity not subject to mortgage.

Despite the weaknesses in house prices, however, borrowers continue to hold over £800 billion of unmortgaged housing wealth, with little change since the CML last published data based on the first three months of 2011.

In the intervening period house prices have barely changed – having declined by 0.3%, according to the Halifax index, and risen by 0.9% using the Nationwide measure.

There have, however, been significant variations across the UK. The CML said the vast majority (90%) of loans advanced since the second quarter of 2005 and still outstanding remain in positive equity.

Over half of these loans have an equity cushion of at least 30% and more than four-fifths have equity of at least 10% of the value of their home.

The trade body estimates that 26% of mortgages taken out in 2007 are now in negative equity but said that is an improvement on its earlier estimate of 29% in the first quarter of last year.

The CML said: “It is, of course, important to remember that being in negative equity does not imply that the borrower has any difficulty in repaying his or her mortgage.

“Repayment problems are usually triggered by a change in the borrower’s circumstances – typically, the loss of income through employment changes or illness, or the break-up of a relationship (when a couple are paying a mortgage jointly).

“Our data show that payment problems peaked during the recent economic downturn at much lower levels than in the early 1990s – and have been on a downward path since 2009.”

And it added: “Being in negative equity may make it more difficult for some borrowers to move home or re-finance. But lenders continue to show flexibility, where possible, despite facing their own funding, capital and regulatory constraints.”

The CML assessed the equity position of more than 70% of the 10 million owner-occupied loans outstanding in the UK.

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