Home sales restricted by negative equity
Lenders have recently stated that the number of property transactions and home moves is set to be seriously hampered by the fact that so many people are now in or facing negative equity as a result of plunging property valued.
With around two million homeowners thought to be in negative equity or facing it many have either no equity or too little equity to be able to afford to move house.
Negative equity is where the property value falls below the amount owed on the property, and with house prices having fallen by over 20 percent since their peak it is thought that many people are now finding themselves in the same situation that many homeowners in the early 1990s faced when they were plunged into negative equity. With property sales levels already low this situation is set to do nothing to help revive the housing market.
Officials from the Council of Mortgage Lenders have now said that the number of people that are in or close to being in negative equity could seriously affect the level of property sales.
One CML official said: “Although negative equity has resurfaced as house prices have fallen, one big difference from the early 1990s downturn is that it is less concentrated among young, first-time buyers, and more evenly spread across wider age groups and those at different points on the housing ladder.”
He also said: “Negative equity will contribute to subdued property turnover, but otherwise should have few adverse effects for the majority of households affected.” However, the CML also said that there is no link between being in negative equity and having mortgage repayment problems, stating: “Payment problems are typically associated with unexpected spending commitments, reduced income and changes in household circumstances Negative equity, on the other hand, only surfaces as a problem if households need to move, or are also experiencing repayment difficulties.”
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