Most Loan Borrowers Have Substantial Equity
Since the credit crunch hit the housing and home owner loan market, back in 2007, the average price of a house in the UK has fallen steadily, as fewer buyers are able or willing to purchase property or commit to a large home owner loan.
This has led to fears by many that those who took out a loan at the height of the market, with a high loan to value home owner loan or mortgage, could now be in a situation where they are suffering from negative equity, that is, the amount of outstanding loan is higher than the actual value of the home it is secured against.
However, new research from the Council of Mortgage Lenders (CML) has shown that around 75 per cent of home owners in the UK do have an equity cushion between the value of their property and the balance of their home owner loan.
Almost half of borrowers with a secured loan on their property have loan debts of less than 70 per cent of the value of the house and a further quarter of borrowers have loan debts which leave an equity balance of between 10 and 30 per cent.
The CML have estimated that the number of borrowers with negative equity on their loan is around the 827,000 mark, equivalent to 2008 levels. Although this may seem like a lot, it is well below figures for the early nineties, when the number of people with negative equity on their loan was around 1.6 million.
The CML also pointed out that whilst negative, or low equity makes it more difficult for people to move house, it does not affect someone’s ability to keep up with their loan repayments or fall into arrears on their home owner loan and therefore should not be a major concern unless someone is looking to move house.
