One in six home owners face negative equity

Discussion in 'General Business Forum' started by vineetthomas, Jul 30, 2008.

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  1. vineetthomas

    vineetthomas UKBF Newcomer

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    One in six homeowners in the UK will fall into negative equity by the end of next year if house prices fall by a further 17 per cent, according to new research.
    At least 70,000 homeowners already have mortgages worth more than the value of their home, following a decline in house prices by more than 10 per cent since September last year.
    If prices fall by a further 17 per cent, this number of people in negative equity could rise to 1.7 million, according to Standard & Poor's (S&P), the credit ratings agency.
    Some analysts have forecast that house prices could fall by a further 20 per cent by 2010.




    Negative equity is a problem for borrowers who want to move home or who fall behind with their mortgage payments as they could be forced to sell their property at a loss.
    People with blemished credit records are most vulnerable to falling into negative equity, as they have the highest loan-to-value on their mortgages, S&P said.
    However, even homeowners with clean credit records will also be affected, with around 13 per cent of "prime" borrowers also being pushed into negative equity.
    Buy-to-let borrowers tend to have higher deposits but S&P said there is a "tipping point" at which many landlords would fall into negative equity.
    A 17 per cent fall in house prices would cause around 19 per cent of buy-to-let borrowers to owe more on their property than it was worth.
    "As an approximate rule of thumb, for every further percentage point decline in house prices, a further 0.5 per cent to 1.5 per cent of borrowers, or around 60,000 to 180,000 people, could enter negative equity," the S&P report said.
    However, the threat of negative equity differs around the country.
    A 17 per cent fall in prices would force only 6 per cent of Scottish homeowners into negative equity after recent price rises in the country, while 21 per cent of borrowers in the East Midlands would be affected.
    In an additional blow to the mortgage market, which has ground to a halt in the wake of the US sub-prime crisis as investors shy away from mortgage-backed securities on which lenders rely to fund new mortgages, S&P said the increasing threat of negative equity could force ratings on some securities to fall.
    "Rising risk increased the default risk on all related notes, potentially leading to downgrades across the whole capital structure."
    This could lead to investors, who have already purchased securities, being left with assets that are worth less than they thought.



    Times Online news
     
    Posted: Jul 30, 2008 By: vineetthomas Member since: Nov 13, 2007
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  2. 360interactive

    360interactive UKBF Legend

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    Yet I also read an article recently on how house prices are due to rise at the end of next year?

    I have given up reading any news article about the so called credit crunch.
     
    Posted: Jul 30, 2008 By: 360interactive Member since: Jul 20, 2008
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  3. Mattonella Tile Studio

    Mattonella Tile Studio UKBF Legend

    1,587 319
    Me too. The value of our house only concerns me if we plan to move or remortgage. As I have no plans to do either I don't care what it's value is as it's all hypothetical.
     
    Posted: Jul 30, 2008 By: Mattonella Tile Studio Member since: Jun 10, 2008
    #3
  4. Poppy Design

    Poppy Design UKBF Enthusiast

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    Not really sure what the point of this posting?!

    I am sure people are aware if they are facing negative equity?

    This is a business forum not a personal finance forum.

    Nobody can stop falling house prices - in fact it seems while falling they are merely coming back down to a more normal level as opposed to the over inflated prices people have been paying.
     
    Posted: Jul 30, 2008 By: Poppy Design Member since: Mar 30, 2006
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  5. vineetthomas

    vineetthomas UKBF Newcomer

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    We are into refinance so just concerned about the market situation and to get a review , lot of people are looking to refinance but very few banks ready to do it cause of equity and credit.

    I think debt management should work now.
     
    Posted: Jul 30, 2008 By: vineetthomas Member since: Nov 13, 2007
    #5
  6. KidsBeeHappy

    KidsBeeHappy UKBF Legend

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    How prices will not fall by 17% that's just scaremongering. And not very useful.

    The article would look a lot less dramatic if it said 1 in 32 homeowners are going to slip into negative equity if prices fall by the anticipated 5%.
     
    Posted: Jul 30, 2008 By: KidsBeeHappy Member since: Oct 9, 2007
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  7. deniser

    deniser UKBF Legend

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    The Evening Standard headline today was "Profit crash rocks Banks" and talked about another Northern Rock when the article was just about Lloyds TSB posting less than expected profits.

    All scaremongering as you say Boxby.
     
    Posted: Jul 30, 2008 By: deniser Member since: Jun 3, 2008
    #7
  8. Richie N

    Richie N UKBF Legend

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    You trying to depress us even more? lol
    I bought two BTL properties just before the credit crunch :(
     
    Posted: Jul 30, 2008 By: Richie N Member since: Nov 1, 2006
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  9. deniser

    deniser UKBF Legend

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    If they made financial sense then they will continue to do so and there is nothing to worry about as long as you have a long term view.
     
    Posted: Jul 30, 2008 By: deniser Member since: Jun 3, 2008
    #9
  10. Moneyman

    Moneyman UKBF Legend

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    forget the housing. The quick answer is every economist on this planet has a different set of figures as to where it will all go. so who knows? It just gives a chance for a new headline every day.

    The situation out there is very very bad for raising business finance and if you need to raise cash and only have 30% equity in your house...dont count on the banks helping. they are behaving apallingly at the moment.
     
    Posted: Jul 30, 2008 By: Moneyman Member since: May 3, 2008
    #10
  11. Richie N

    Richie N UKBF Legend

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    True...well both are in demanding areas and are covering the mortgage, so no problem really...at the mo!
     
    Posted: Jul 30, 2008 By: Richie N Member since: Nov 1, 2006
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  12. Cornish Steve

    Cornish Steve UKBF Legend

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    This is only an issue if someone really must sell their home; otherwise, it's irrelevant. Prices will increase over time, and most homeowners don't move around a lot.

    Anyone who buys a new car faces negative equity the moment they drive it away, and that's likely to continue for a year or two. It's just a fact of life, and we manage our finances around it.
     
    Posted: Jul 30, 2008 By: Cornish Steve Member since: Jul 4, 2005
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  13. An Oasis

    An Oasis UKBF Legend

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    Posted: Jul 30, 2008 By: An Oasis Member since: Oct 3, 2006
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  14. Chippie

    Chippie UKBF Ace

    795 139
    Disagree there Steve. Anyone who buys a new car always has and always will face negative equity as soon as they drive it away, ad infinitum! Cars are a necessity nowadays but paradoxically they are also the biggest financial drain known to man. It really iritates me when people say "I'm investing in a new car"! Clearly they either have a warped definition of "investment" or they are just plain stupid. :|

    As I earn a very comfortable living from the car industry, I feel a bit like Gerald Ratner saying that, but it's true. I will NEVER spend inordinate sums of money on cars and will NEVER buy a new car. :D
     
    Posted: Jul 30, 2008 By: Chippie Member since: Jan 3, 2008
    #14
  15. maria102

    maria102 UKBF Legend

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    We all know about the decrease in house prices, we don't care what our house is worth, but we have two to sell so that we can buy one house for our marital home - one year and 3 days married....but because of the confidence knock in the housing market we can't sell! we are significantly lower than any other house in the area and we have done it up as much as we can :|
     
    Posted: Jul 30, 2008 By: maria102 Member since: Oct 25, 2005
    #15
  16. Cornish Steve

    Cornish Steve UKBF Legend

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    Sorry. I didn't phrase my point very clearly. I meant that the negative equity situation usually lasts for a year or two, until the resale value equals the depreciated cost.
     
    Posted: Jul 31, 2008 By: Cornish Steve Member since: Jul 4, 2005
    #16
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