Over half a million households at risk of negative equity

Half a million households would be at risk of negative equity if there was a drop in the average UK house price of the scale seen in the last financial crisis, according to research conducted by Computershare Loan Services.

In an analysis, the third-party mortgage servicer forecasted that the value of 4.12% of properties – or 458,000 households – would drop below the outstanding mortgage balance on the property if average house prices fell by 18.72% as it did between 2006 and 2009.

This is a lower proportion than when a similar drop saw between 7% and 11% of properties fall into negative equity after the last financial crash – an improvement that Computershare attributes to providers lending more responsibly and complying with new regulation.

“Negative equity can create serious financial problems for borrowers and their families, so a substantial decrease in the average house price could contribute to significant economic problems in the event of another crash,” said Andrew Jones, chief executive officer at Computershare Loan Services.

“Nevertheless, it seems that better lending practices by mortgage providers since 2008 have ensured that the consequences of such a fall could be significantly less damaging than after the last financial crisis.”

The data also suggests that the North, which would experience an increase of 6.79% in negative equity, would be worst affected by a 19% drop in house prices, with Northern Ireland (6.18%), Wales (6.12%) and Yorkshire & Humber (5.14%) also experiencing larger than average negative equity hikes.

Adding to this, Craig Simmons, acting head of debt advice at Money Advice Service, commented: “Negative equity can go hand-in-hand with financial difficulties and it is important people plan ahead for possible changes to interest rates and house prices where possible.”

“There are multiple sources of impartial debt advice available to people should they find themselves in financial difficulty and the Debt Advice Locator tool is a good starting point for finding help.”

He added: “We work closely with lenders and advise providers to ensure support is there for people if their financial situation deteriorates and I encourage the two sectors to continue building ever-stronger working relationships.”