The slowdown in the housing market is continuing, due to the general slow down in the UK economy and the difficulty in being able to obtain a loan or mortgage to purchase a house. Prices fell once again in June, making nine consecutive months of reductions in values.
With further reductions looking very likely, home owners are starting to ask the inevitable question, am I going to be facing negative equity in my home? Negative equity is the situation where the amount of loan an individual has outstanding on their home exceeds the overall value of the property and was last seen in the property crash of the early nineties.
According to new research from GE Money, property prices would need to drop by twenty per cent before we see those individuals with home loans suffering negative equity. These figures apply to a person who bought a property last year and put down an average deposit, paying interest only on the mortgage, for someone on a repayment style loan, the drop would have to be even greater as they are reducing the balance of the debt all the time.
This is the most pessimistic outlook from the research. For borrowers who have owned their homes for longer, even if they took out large loans to finance the purchase, the situation is much stronger. This is largely due to the fact that property prices have increased dramatically over the years preceding the onset of the credit crunch. Even someone who bought their home four years ago and took out a 100% mortgage or home loan now has equity of 50%, meaning that their home would have to halve in value before they faced negative equity.
There are obviously regional variations within these figures, with those living in London in the strongest position requiring a drop of 73% (from purchasing in1995) before they face negative equity, but this is generally a refreshing piece of good news in the currently turbulent housing market and gives us all one less thing to have to panic about!
