21% of UK mortgage holders borrowed more than 90% of their homes' value, putting them at risk of negative equity

10 February 2009 / by Rebecca Sargent
Research from Fairinvestment.co.uk has found that 21 per cent of UK mortgage holders borrowed a mortgage Loan to Value (LTV) of 90 per cent or more – potentially putting them at risk of negative equity.

In a survey of 2,000 Brits*, Fairinvestment.co.uk found that although the average mortgage LTV borrowed by homeowners is 64 per cent, three per cent of mortgage holders had borrowed 125 per cent LTV, five per cent had borrowed between 101 and 125 per cent, and 13 per cent had borrowed 91 to 100 per cent of the property's value.

This means that 21 per cent of mortgage holders borrowed more than 90 per cent of their property's value, which could give them an increased risk of negative equity – particularly if house prices continue to fall.

The Financial Services Authority has predicted that if house prices fall by 30 per cent from the level they were at the end of 2007, more than two million British homeowners will be in negative equity – this is more of a risk for those who borrowed 90 per cent of the property's value or more, as according to some market analysts, house prices have already fallen by more than 15 per cent in the last 12 months alone**.

On a positive note, 19 per cent of mortgage holders borrowed just 20 per cent of the property's value or less, meaning they owned 80 per cent of their home when they bought it.

A further 16 per cent borrowed between 81 and 90 per cent of their home's value, while another 15 per cent borrowed between 71 and 80 per cent. In total, 10 per cent of Brits questioned had borrowed between 61 and 70 per cent.

Commenting, chartered financial planner at Fairinvestment.co.uk, Sharon Bratley said: "Our statistics show that, although the days of high LTVs are now in the past, there are a number of mortgage holders out there who did borrow more than 90 per cent of their home's value.

"These homeowners could now be at risk of negative equity as house prices continue to come down, particularly if they bought their house within the last three years," she said.

"However, unless they are planning to sell up, negative equity is unlikely to affect homeowners who can hang on until the market recovers," Mrs Bratley continued.

"Nevertheless, negative equity can be concerning, so, as interest rates fall - taking mortgage rates with them - it could be advisable to those with a high mortgage LTV ratio to increase their mortgage payments, and therefore the equity they hold in their property, depending on their circumstances.

"Because interest rates are particularly volatile at the moment, it is always worth shopping around to make sure you are getting the best available deal on your mortgage, whatever LTV ratio you have."

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*Survey conducted by OnePoll for Fairinvestment.co.uk with 2,000 respondents

** Halifax House Price Index shows that house prices have fallen 17.2 per cent since January 2008