Around 1.7m households in the UK will be in negative equity if house prices fall a further 10%.
The warning, from Skipton Building Society subsidiary HML, follows the latest Halifax report which shows that house prices fell 1.2% in August and are now 2.6% lower than a year ago – although they moved up 1% in the three months to the end of August.
Financial outsourcer HML says that if house prices fall 10% from now, the number of households in negative equity could double to 1.7m, and 30% of all borrowers in Northern Ireland would be in negative equity.
It also warned, echoing the Law Society, that borrowers under 30 will be the most vulnerable to falling house prices.
Currently 827,321 home owners (7.3% of all households with a mortgage) have a debt that is higher than the value of their property. If house prices fall by 10%, that number would rise to 1,673,707 (14.8%), which is close to the record 1.8m negative equity cases seen in the house price crash of the early 1990s.
The analysis also shows that nearly a third of all borrowers in Northern Ireland (93,134 or 30.4%) could be trapped by negative equity, while the North-West of England will be the region with the highest number of home owners with loans larger than the value of their property (213,674).
If house prices do fall by 10%, nearly one in four borrowers (23.8%) with negative equity will be under the age of 30 and a further 23% will be aged between 30 and 40.
HML’s chief finance officer Neil Warman said: “This analysis shows just how vulnerable UK households are to a continuing fall in house prices.
“Since their peak before the onset of the credit crunch, house prices have fallen by nearly 18% and, although there’s considerable variation in future forecasts, a number of analysts are saying we need to brace ourselves for further falls.
“HML’s data shows that even if house prices dip by just 2.5%, more than 1m UK households will have a mortgage debt that is larger than the value of their home. For many regions, negative equity could hinder the free movement of labour, especially among younger borrowers, which will inevitably contribute towards a delayed economic recovery.”
HML did its analysis using data from more than a quarter of a million live mortgage accounts across the UK.
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Comments
"It's the way you tell em"
Possibly there is an opening for setting up a cosultancy business for advising people why they should NOT sell!
I am now off for a lie down in a darkened room! ;>D
I see Ray's point here - but who is going to inform those (potential) vendors? Grant Shapps has jumped through linguistic hoops not to say houses are overpriced. Significant sections of this country's media are still trying to ramp property like it's 2007 too. Meanwhile, TV is still full of re-runs of property porn from the last decade.
An anecdotal posted over on HPC went something like this: Friends bought a place in 2007 for £180K. Due to changing work circumstances they wanted to move. Going with the highest value they could get from an EA, they put it on the market in 2010 for £225K and had no interest. A year later and two reductions in price, it's still had no takers at £190K.
Down the pub, the couple complain about this to their HPC friend. He mentions that according to govt data (the Land Reg) property in their area is now selling at 2004 prices. This would suggest that their house might realistically only sell for £150K.
Although people were only on their second round, the wife leapt up, threw her drink over the guy and screamed at him so loudly she had to be escorted out of the pub by her husband...
In short, so many people have financially and emotionally bought into the bubble, they do not want to be told the truth!
@Barry Chuckle
If you are in the business you havn't been in it long have you? Because they do! ;>)
Raymondo
Why would people who don't want to sell be going to see an estate agent - who's job is too, erm, sell houses?
@AoS
You're a strange one aren't you?
I'm not sure what you are talking about but please fell free to continue putting words into my mouth.
This year the one thread that is has been fairly constant in the discussion about property prices in posts from EA's or those associated with EA is the lack of volume in their businesses and that owners (clients) should be encouraged to reduce prices more. Why?
If people do not want or have to sell at what they perceive as a "loss” why should they? If they can stay put they should be advised accordingly. EA's will have to get used to a smaller market place and a reduction in their numbers because nobody owes them a living.
Deluded EA - Is that the same as estate agents aren't all one "one homogeneous group"? Not half as many as you think actually have a BTL portfolio. Never ASS-ume.
You really are indecisive with your statements/'arguments' .....or are you?
@wardy
Stop trying to pick a fight where there isn't one. Investors clearly aren't one homogeneous group are they?
At one end of the spectrum you have the sensible type who see renting as a business and focus on rental yield, at the other there are numpty's who bought at the top of the bubble for assumed capital gain because "everybody was doing it and somebody else will pay the mortgage".
My initial post related to the latter.
Deluded EA,
Make your mind up, either lower prices are good for investors or investors want higher prices to retain value in their portfolios. Which is it?
or
it was a witless sarky comment in the first place and should be ignored.
One thing is for sure, I havnt got a single ex renter on the books at the moment so it looks like they are keeping hold of them.
Exactly Neo,
If I recall - courtesy of another HPC poster - it's something like 50% own outright. Of the remaining 50% with a mortgage, 10% have between 0-20% equity, 10% have between 20-40% equity, and so on.
This will mainly impact those that MEWed or bought in recent years. There will still be those with sufficient equity to sell-up despite 10% drop in prices.
A quick search on Rightmove shows that supply in my postcode area has now surpassed the peaks of Spring. N'equity is not yet at a level that has prevented these vendors from putting their properties on the market.
@ Deluded EA
Oops I think you may have touched a nerve there!
I think his logic is 'because prices are dropping, prices won't drop' but I might be wrong.
The problem with this argument of course is that prices could fall considerably and NE would only affect the minority - around 40% are owned outright and the majority of those mortgaged will have sufficient equity to not be affected by NE, even in the event of heavy price falls.
But there I go soouting [sic] my bullshit again..
I dread to think that fewer people will want to move.
The market here seemed to hit a brick wall around mid July, since when public confidence has totally evaporated. We're barely getting a sniff of interest and if anything investors are offloading rather than building their portfolios. I'm embarassed when I look at our stock, far too many shabby ex-rentals with ludicrous asking prices.
I suspect that it's going to be a long, lean winter.
Good luck everybody!
So you are saying it's impossible for prices to drop? That doesn't make sense. Have you looked out of the window lately? Falling like a stone round my way.
Also, why the foul language and personal insults? Why so hot under the collar? It undermines your argument. Not that you have one of course.
Deluded EA, please actually read the article instead of the title.
If prices drop it means more people will be in negative equity, which means that more people will not be able to sell their home, which means there will be less houses on the market, which means there will be higher demand for the properties that are on the market.
You HPC idiots just see "price drop" in the title and go off soouting your bullshit without looking into the actual article.
@Kingpin/wardy
Why would I mind if investors are loving this market? Sure, the boasting is a little unsavoury but good luck to them. Falling prices are good for FTB's and investors alike. In fact, they're good for the whole darn country. Yippie-kai-yay.
BTL Kingpin
Have you ever heard of a margin call? You should read the small print.
BTL Kingpin, did you buy cash outright?
@BTL King pin.
There is evidence of crashes lasting 16 years. i.e Japan
Not that i believe we will be so unfortunate.
Also there are many buy to let investors much closer to retirement who invetsed in BTL in at the height of the bubble, on interest only mortgages. A long stagnation/crash will make things difficult for them.
Hey, BTL Kingpin I was wondering what you thought about the changes in LHA from October? The government's own (i.e. probably underestimated) projection show that most HB tenants will receive around £40 a month less, and around £70 a month less in London.
I suppose you'll just 'not bother with HB' then. Funnily enough lots of LLs are saying the same, which unless I'm mistaken will mean a much greater supply of properties = lower rents. And this on top of capital depreciation too - ouch!
You could always ask the good people of Japan how long crashes last ;-D
Doesn't negative equity have the ability to stop remortgaging as well. Just saying you are in negative equity but if you don't sell everything is aright is wrong. Being in neg eg forced onto a higher rate may be very costly and force more distressed sales.
You HPC trolls crack me up!
So what if equity values are dipping? Why do I care? I'm raking in rents, and these are long term investments so have no plans to sell any time soon anyway.
How long do crashes last? 5 years? 10 tops.
Happy to rake in the income til 2017-2020.
Good luck catching up with that boat ;]
Deluded EA,
I’ve noticed this misconception on other sites, namely HPC where lots of posters assume that agents all have a massive BTL portfolio. I’ve worked London and the south east for years and I assure you this is not the case. You do realise that BTL investors are loving this market? Rents are up and the return on their investments is better than ever in most cases regardless of equity values.
Sorry but your barking up the wrong tree there.
The thing is if the price of something drops it has zero effect on peoples likeliness to buy it. If prices drop back to 3/4 times average salary it does not mean any more house will be sold. I was able determine this ‘fact’ after looking at my own BTL portfolio and then performing some strenuous mental gymnastics.
The only way for the world to be saved is for banks to start up lending unlimited amounts of money to be who have the ability to lie. After all it is not like that would be unsustainable in the slightest.
It doesn't matter though does it because it's impossible for prices to fall, people just won't sell etc etc.
Or is that just wishfull thinking cos I piled into BTL at the top of the bubble? Doh.
Unless the mortgage holders want to move or were hoping for equity withdrawl, It does not reallty matter.
However it is probable that those in neg equity are more likely to to be the ones wishing to move.