Millions of mortgage holders face negative equity threat

04 April 2008 / by Joy Tibbs
Many mortgage holders could find themselves facing negative equity on their homes according to John Charcol and Liberal Democrat MP Vince Cable.

According to reports, almost 11,000 mortgage offers have been taken off the market since the credit crunch hit last summer, while the falling number of mortgage approvals and a decline in house sales have added insult to injury.

John Charcol has reported that a number of mortgage providers have been forced to raise tracker rates to ward off the thousands of borrowers looking for a new deal.

Spokesperson Katie Tucker explains that: "Because the synchronisation of exceptionally low two-year-old deals of around 4.29 per cent are now reverting to unnaturally high standard variable rates of around 7.25 per cent, remortgagers are also scrambling to arrange affordable rates, and lenders have had to pull their best deals off the shelves just to catch their breath."

Not only are rates increasing, many lenders are simply withdrawing products from the market, often with very little warning.

"There is also almost no notice of product closures, as lenders are reacting to the domino effect: others pack up shop, they suddenly find themselves market leading and have to pull down their shutters quick-smart," says Ms Tucker.

"This means borrowers are being caught out by hesitation, even, for just one day. If the next best choice is 0.4 per cent higher, that hesitation cost someone with a £200,000 mortgage, £800 a year."

And she suggests that those with 100 per cent mortgages or just below are most likely to face negative equity as house price growth slows and higher loan charges are imposed.

However, although she points out that "trackers are sky-high and purposefully out of reach", Ms Tucker adds that lenders are now "able to price fixed rates competitively, offering some alternative for borrowers".

Meanwhile, Vince Cable claims it is "highly plausible" that three million UK households will find themselves with negative equity within a year as a result of falling house prices and higher mortgage repayments.

This figure largely accounts for those with mortgages of 90 per cent or more of the property value.

While some are already experiencing a deficit, others will find themselves at a loss if house prices fall by 10 per cent.

"It is becoming increasingly clear that the downturn in the housing market is much more than just a blip," says Mr Cable.

"As the credit crunch continues to restrict lending and with many people saddled with masses of personal debt, a dramatic fall in mortgage approvals was inevitable."

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