Half a million homeowners at risk of negative equity

A drop in UK house prices on a similar scale to that seen in the financial crisis would put nearly half a million households at risk of negative equity, Computershare Loan Services has warned.

The third party mortgage servicer has forecast that the value of 4.12% of properties – or approximately 458,000 households – would drop below the outstanding mortgage balance on the property if average house price fell by 18.72% as it did between 2006 and 2009.

The figure is lower than the proportion affected after the last financial crash, when a similar drop saw between 7% and 11% of properties fall into negative equity – an improvement that Computershare attribute to providers lending more responsibly and complying with new regulation.

Its data suggest that the North, which would experience an increase of 6.79% in negative equity, would be worst affected by a 19% drop in house prices, with Northern Ireland, (6.18%), Wales (6.12%) and Yorkshire & Humber (5.14%) also experiencing larger than average negative equity hikes.

Andrew Jones, CEO at Computershare Loan Services, said: “Negative equity can create serious financial problems for borrowers and their families, so a substantial decrease in the average house price could contribute to significant economic problems in the event of another crash.

“Nevertheless, it seems that better lending practices by mortgage providers since 2008 have ensured that the consequences of such a fall could be significantly less damaging than after the last financial crisis."

Craig Simmons, Acting Head of Debt Advice at Money Advice Service, said: “Negative equity can go hand-in-hand with financial difficulties and it is important people plan ahead for possible changes to interest rates and house prices where possible.

“There are multiple sources of impartial debt advice available to people should they find themselves in financial difficulty and the Debt Advice Locator tool is a good starting point for finding help.

“We work closely with lenders and advice providers to ensure support is there for people if their financial situation deteriorates and I encourage the two sectors to continue building ever-stronger working relationships."

Article published by Financial Reporter - 14th February 2018