The scourge of negative equity returns

June 4th, 2008

A new study released by Citibank shows that negative equity, that scourge of the property market in the early nineties, is beginning to become a real problem once again.

A quarter of a million homeowners have slipped into negative equity since the start of 2008 and more than a million could suffer the same fate by the end of next year as the housing crisis deepens.

The report says the current problems being seen in the housing market have seen prices fall by 7 per cent since last autumn, creating a rise in the number of people who owe more on their mortgage than their house is worth.

In the midst of the early 1990s recession around 1.8 million homeowners were trapped in negative equity.

There are warnings that house prices could fall by 15 per cent or more by the end of 2009, taking the number of households in negative equity over the million mark.

The house price figures will pile more pressure on the Bank of England. Its Monetary Policy Committee is expected to leave interest rates on hold at 5 per cent when it meets on Thursday, despite three cuts in the past few months.

This move would help with the current inflation being seen in fuel and food prices but does nothing to help the housing market. It is widely thought that inflation will prevent any further interest rates cuts this year, meaning the current housing market problems look likely to continue.

Both mortgage providers and general loan lenders are expected to increase pressure on borrowers this week.

The Cheshire building society is expected to increase the cost of two of its three fixed-rate mortgages and add £500 to its mortgage fee.

The following day the Post Office will increase the interest paid on its fixed-rate mortgages by around half a per cent. Last week the Abbey and the Woolwich increased the cost of their fixed-rate loans. Tracker mortgages are fairing slightly better but not a lot.

Interest-only loans are also being hit by the credit crunch, with many lenders shutting the door on people trying to get the deals, popular with people trying to keep their bills down.

This entry was posted on Wednesday, June 4th, 2008 at 9:12 am and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

The scourge of negative equity returns

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