Nearly 500,000 homes fall into negative equity

Almost half a million homes in the UK have fallen into negative equity.

This means that the house is now worth less than the mortgage that was initially taken out on it. Figures showed a wide regional variation, with 16 per cent of borrowers in the north-east and Cumbria finding themselves in this situation last year.

Results showed the situation in that area was actually worse than six months previously, when the figure was 14 per cent. This has been attributed to a further fall in house prices. Meanwhile, in London, only one per cent of properties were said to be in negative equity. 

Figures from the north-east and Cumbria showed this region fared the worst out of all parts of England and Wales when it came to the number of homes becoming worth less than their mortgages. Next in line came the West Midlands and Yorkshire and Humber, which each reported results of 11 per cent. 

The north-west and East Anglia came after, with figures of seven per cent. Meanwhile, in the south-east, just two per cent of properties were said to be in negative equity.

Despite the alarming headline, the situation is actually getting better, with the 500,000 figure representing only eight per cent of the total number of mortgage holders. This is said to be a significant improvement against five years ago.

Homeowners in this position are only likely to be affected should they decide to move and so the majority of people should not find themselves in difficulty. However, those that do need to leave their homes are often finding they are unable to sell their property as banks and building societies will most likely make them pay back the difference in loan amount.

Because of this, more and more people are finding themselves becoming so-called 'accidental landlords', meaning they are having to rent out their house instead of being able to sell outright. One letting agent in the north-east reported a significant increase in business, as more homeowners are forced down this path.

He claimed around 25 per cent of landlords in the local area were in this situation. Many are waiting for house prices to rise enough to allow them to sell, but some have so far had to wait six years without success. 

However, some mortgage lenders are offering customers the opportunity of 'porting' their loan to their new house. To be eligible for this, borrowers must be in secure, full-time employment and be able to afford any additional charges that may come as a result of the move.

Kate Faulkner of propertychecklists.co.uk commented: "It may well be that they will allow you to take the mortgage with you, and take that loan that you owe to the next property. So it's not disastrous if that happens. The trick is to talk to your lender as early as possible."

Mortgage services company HML, which carried out the research, stated the results showed the north-south divide was clearly present when it comes to the value of property. It hoped the significant recovery felt in London will produce a ripple effect that will encourage other regions to follow suit. 

Damian Riley, director of business intelligence at the company, commented the turnaround on Greater London was extremely impressive, being that the area had 22,141 mortgages that were in negative equity during the second quarter of last year. He attributed the return to form to the the 15.4 per cent increase in house prices in the area over the last 12 months. This was more than double the rise achieved in the rest of the country. 

He reiterated that homeowners did not need to worry if they were not thinking of moving house, as improving prices will resolve the issue for many people. Those who had free disposable income were advised to contact their mortgage lenders to discuss the possibility of paying extra, so as to close the gap between the value of the property and their loan amount.

Meanwhile, people who were worried about being able to afford their repayments were urged to talk to their providers at the earliest opportunity. 

By Amy White