Thursday, August 11, 2011

UK: 800,000 homeowners in negative equity

Seven per cent of all homeowners with mortgages are now in negative equity – owning houses that are worth less than the loan that they still have against the property.

The Council for Mortgage Lenders said 827,000 homeowners were in negative equity, broadly the same number as in 2008.

Before the credit crunch, the number of people in negative equity was "negligible". Collapsing property values and the availability of high loan-to-value mortgages shortly before the financial crisis helped to fuel the increase.

Loan to value shows how much of a property's value is left to repay on the mortgage or loan – and how much is owned outright by the homeowner. If the value of your property drops, the loan to value ratio becomes higher, until the value of the loan outstrips the worth of the property.

David Hollingworth, of mortgage brokers London & Country, said being in negative equity was only a problem if you tried to remortgage or wanted to sell your property.

He said there wasn’t a correlation between this and having problems paying your mortgage. (more)