Piggybank News

August 16, 2011

Negative Equity not as high as in the 1990’s?

Filed under: Property — nspresources @ 1:07 pm
Tags: , , , ,

A recent study by the Council of Mortgage Lenders shows that 14% of loans issued over the past 6 years are now in negative equity.  A further 25% have less than 10% equity left in their homes.

Despite these initially frightening figures Paul Smee, Director-General at the CML, says:

“Negative equity is much less common than in the 1990s, and in the current cycle low interest rates and a relatively stable employment market are providing more options for borrowers and lenders in difficulty”.

The number of mortgage borrowers in negative equity – where their loan is bigger than the value of their house – is around 827,000 at the present time.  Whilst this represents a slight increase over recent years the problem is not as great as in the early 1990s, in which an estimated 1.6 million households were in negative equity.

Paul Smee goes on to say that “There is no direct relationship between negative equity and mortgage payment problems. What typically causes difficulty for households is not a nominal fall in housing value but an unexpected change in personal circumstances, like the loss of a job or the breakdown of a family relationship.”

For households and  investors currently facing negative equity this may be small comfort but realistically speaking, as long as you can afford mortgage payments, the problem is purely a theoretical one in any case.  For householders in negative equity it only becomes a major issue when they need to sell and this is where more flexible options offered by experienced professional investors can offer a welcome life-line.

(Piggy says  “For investment property we have always focused heavily on cashflow rather than predicted capital gains and this policy has enabled our portfolio to withstand market fluctuations much more securely.”)



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