Money News

Negative equity returns as Brits struggle to pay mortgage

By Martin Fagan - news@consumerchoices.co.uk

More than 800,000 homeowners in negative equity and 14% “struggling” to pay.

A struggling property market and people buying at the wrong time has resulted in 827,000 households in negative equity, according to new figures from the Council of Mortgage Lenders (CML).

Negative equity is where the current value of the property falls below the original mortgage amount secured on it.

The CML said the point in time the loan was taken out had a dramatic impact on the incidence of negative equity and that half of negative equity cases relate to loans taken out in 2007, when lending conditions were at their most competitive and house prices at their peak.

Nearly a third of continuing loans from 2007 are in negative equity, the CML estimated.

However, the CML said the current number “does not compare” with the early 1990s, when the number of households in negative equity peaked at 1.6 million, since today’s lenders have more options to offer struggling borrowers.

Options available to lenders include moving customers from a repayment to interest-only mortgage, allowing them a payment holiday or offering to move them to a different deal.

At the same time, consumer group Which? undertook a separate survey which found 72% of respondents were worried about mortgage rates, with 14% struggling to make their repayment every month.

An increase of £50 a month in mortgage repayments would have an impact on three quarters of households, said Which?

The self-styled consumer champion is calling on lenders not to use the current financial crisis as an excuse to neglect struggling borrowers.

“With ongoing uncertainty about the economy, it’s not surprising that many people are worried about their household finances,” said Richard Lloyd, executive director at Which?

“For some it would only take a small increase in mortgage rates to send them over the edge.

“If you’re struggling with mortgage repayments then your first port of call should be your lender,” he advised. “It’s not in anyone’s interest for people to default on their mortgage, so it’s important that lenders do all they can to help their customers who are struggling with repayments.”

Although the Bank of England Base Rate is not expected to rise in the near future, recent research by Which? Money showed that, since the rate reached its all-time low of 0.5% in March 2009, a fifth of lenders have increased the rates on their standard variable rate mortgages.