Half a million households at risk of negative equity

Nearly half a million households are at risk of negative equity, a scale last seen during the 2008 financial crisis, according to analysis.

Half a million households at risk of negative equity

Mortgage servicer Computershare  Loan Services has forecast that the value of around 458,000 households would drop below the outstanding mortgage balance on the property if the average house price fell by around 19 percent – like it did between 2006 and 2009.

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

Analysis by Computershare suggests that the northern region in the UK would face an increase of nearly seven percent in negative equity if house prices dropped by 19 percent – the worst of any region.

Northern Ireland and Wales would face an increase of around six percent, and Yorkshire and Humber would face an increase of about five percent.

Andrew Jones, chief executive of 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 the 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.”