Negative equity is on a decrease

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The number of mortgage borrowers thought to be in negative equity has dropped by 13 per cent over the last year and a half, lenders said this week.

The improvement means that more than 100,000 fewer borrowers are estimated to be in negative equity – where their mortgage balance is bigger than the value of their home – compared with the first quarter of last year, the Council of Mortgage Lenders said.

It suggested the decrease may be partly down to some small improvements in house prices over the last year, although the market is still patchy and prices are below peak levels across the country.

Land Registry sales figures for September showed last week that house prices recorded their strongest annual growth in almost two years, although much of the uplift was driven by London and the south.

Around 719,000 borrowers who took out deals from 2005 onwards are in negative equity, down from 827,000 in the first three months of 2011, the CML said.

The proportion of first-time buyers who are in negative equity has also dropped, from more than a quarter to a fifth.

Meanwhile, an estimated 26 per cent of mortgages taken out in 2007 around the peak of the market are in negative equity, down from 29 per cent 18 months ago.

At 35 per cent, Northern Ireland has the highest proportion of mortgages advanced since 2005 that are in negative equity, reflecting the fact that house prices there are now less than half of their 2007 peak, the CML said in its latest “news and views” release.

By contrast, just five per cent of mortgages advanced in the South East and six per cent in London and the South West over the same period are in negative equity, which are areas where house prices tend to have held up better.

The downturn in the housing market has increased concerns for home owners who bought their property at the peak of the market and are now unable to move house because price falls have eroded the amount of mortgage-free cash they have in their home.

The Financial Services Authority (FSA) estimates that up to 45 per cent of borrowers who had taken out a deal since 2005 could now be mortgage prisoners for a variety of reasons, including some people having credit problems and a drop in the availability of low-deposit and interest-only deals.

The FSA is bringing in toughened mortgage rules from 2014 which aim to prevent any return to irresponsible lending.

The CML said: “It seems likely that low levels of - or negative – equity are a cause of low numbers of transactions, running at around half their peak level.

“But the recession, low levels of consumer confidence and more restrictive lending criteria are having an effect.”