Negative equity here ‘till 2014'

Tens of thousands of mortgage borrowers will remain in negative equity for at least four more years.

According to the National Housing Federation (NHF), many of those homeowners who bought at the top of the market in 2007 will have to wait until 2014 to see the value of their homes rise to pre-credit crunch levels.

The NHF calculated that homebuyers paid on average £216,800 for a property in 2007. It believes that the period 2009 to 2014 will see a 22% increase in average house prices, to £226,900.

While negative equity – where a homeowner owes the mortgage lender more than the property is worth – is not in itself an issue, it becomes a problem when the homeowner concerned needs to move home, as the mortgage lender has the right to demand full repayment of the mortgage at that point.

Homeowners in negative equity who are forced to relocate for work or upsize to accommodate a growing family, for example, are often forced to rent out their existing home and rent a new one, rather than buying.

However, some mortgage lenders are more sympathetic than others in allowing borrowers to ‘port’ or move their debt.

Regarding its predicted property price rises, the NHF said that, while taking a long time to lift existing homeowners out of negative equity, price levels remained prohibitive for first-time buyers, painting a ‘lose-lose’ picture all round.

David Orr, chief executive of the National Housing Federation, said:

“Even though price rises look sluggish for the next few years, affordability is not improving for many low-to-middle income households as banks continue to restrict their mortgage lending and house prices remain historically expensive in relation to salaries.

“There’s a very real risk that an entire generation will be locked out of the housing market for the foreseeable future and people will increasingly look to buy or rent an affordable home instead.”