‘One-in-six prime mortgages now in negative equity’

July 21, 2009 at 3:58 pm

There is bad news for the UK mortgage industry and for thousands of mortgage holders as ratings agency Fitch has just reported that negative equity is becoming an increasingly serious problem across the country.

The agency has just announced that negative equity is now affecting one-in-six of all prime mortgages, or 15% of prime mortgages by value. A prime mortgage is a mortgage that comes with a lower interest rate and where the person taking out the mortgage is more likely to be able to afford the repayments because the mortgage amount is equal to about three years’ income.

What this means is that one-in-ten property owners across the UK are currently in negative equity, a startling figure that reveals the true extent of the problem.

Unfortunately, it is also set to get worse. If house prices continue to fall then Fitch is predicting that the number of prime mortgage holders to go into negative equity will continue to rise, and will jump from 15% this year to 34% next year.

The worst-affected bank is Northern Rock, with 32% of its specialist mortgages affected, although Bradford & Bingley and Alliance & Leicester have also been badly affected in their specialist divisions.

As far as mortgage holders go, Sunderland was rated the worst area in the country with the highest rate of negative equity, with Northampton also being badly affected.

The director at Fitch, Ketan Thaker, said that the problem is that people whose properties are worth more than their mortgages “have options available to them” that people in negative equity do not. They can sell their property or re-mortgage it, for example, or even release equity to help in cash-strapped times.

However, it should also be noted that although being in negative equity reduces the options for those people who find themselves in debt, it does not mean that they are more likely to default on their mortgage payments.

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