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Negative equity 'need not worry average homeowner'

03/07/2008

Homeowners who bought as recently as four years ago need not worry too much about negative equity, research from GE Money Home Lending has found.

According to the organisation, home owners who purchased their property four years ago, even without a deposit, have an 'equity cushion' of almost 50 per cent before the value of their home loan would exceed the property value.

For those with a sizeable deposit, or a longer time on their mortgage, the likelihood of finding themselves in negative equity is even more unlikely.

The average London property purchased in 1995 would need to depreciate by three quarters (72 per cent) for the owner to encounter negative equity, while an average home bought in 2000 with a deposit of £27,000 has provided a 58 per cent buffer, based on today's prices, GE Money claims.

"Over the past decade homeownership has delivered fantastic returns for many borrowers and we would need to see unprecedented falls in property prices for the average home owner to be severely impacted," Gerry Bell, head of mortgage marketing for GE Money said.

However, those who took out high loan-to-value mortgages recently could be at risk, figures suggest.

More than 30,300 homeowners took out 100 per cent loans since January last year, according to the Council of Mortgage Lenders (CML), and with property prices falling, many could find their home is no longer worth the cost of their mortgage.

Morgan Stanley, the investment bank, recently forecast that two million homeowners could be at risk of negative equity if house prices fell by 20 per cent before 2010.