Yorkshire homes hit hard by negative equity

The fall in the housing market since its pre-credit crunch peak means 7% of mortgaged households would owe money if they sold at current prices, according to research carried out by the Council of Mortgage Lenders (CML).

The latest figure is only slightly less than the 900,000 who were in the position the last time the body carried out similar research, in April 2009, which was immediately after house prices saw some of their steepest falls.

But the CML said that the number of households in negative equity is far lower than in the early 1990s when the number of households was estimated to peak at 1.6 million - nearly double the current number.

The average loan-to-value ratio is less than 60%, meaning that the vast majority of homeowners have a “substantial cushion of equity” to protect them from any further slump in the market.

But nearly 20% of households now have equity of less than 10%, which could leave them at risk of negative equity.

CML director general Paul Smee said the figures did not necessarily indicate that people would struggle to pay their mortgages.

He said: “Negative equity is much less common than in the 1990s, and in the current cycle low interest rates and a relatively stable employment market are providing more options for borrowers and lenders in difficulty.

“There is no direct relationship between negative equity and mortgage payment problems.

“What typically causes difficulty for households is not a nominal fall in housing value but an unexpected change in personal circumstances, like the loss of a job or the breakdown of a family relationship.”

Negative equity is dreaded by home owners because it means they would be left owing money if they sold at current market values, and it freezes up the housing market because many cannot afford to move.

Prices dropped by as much as a quarter around the financial crisis, but have since staged a slight recovery, boosted by record low interest rates and a relatively stable job market.

The housing market has held up better in some parts of the country than others, meaning that homes in Northern Ireland, Yorkshire and Humberside and the north-east are more likely to be in negative equity.