It’s a question worth asking at the moment, especially when you consider the state of both the property and mortgage markets.
New data released by the Council of Mortgage Lenders (CML) has shown that 23,000 of you that took out 100% mortgages in the year to March 31 could see the amount you borrowed becoming greater than the value of your homes as prices fall.
A spokesman for the CML commented on the risk of negative equity for people:
“This in itself is not a problem as long as they are able to continue to pay their mortgage (as the overwhelming majority do) and in the longer term house price growth and capital repayments will take them back out of negative equity”.
“Clearly, we are in a period where we expect house prices to go down. But in the longer term, the market will continue to be underpinned by the shortage of property, house prices will go up again and people will move out of that position, even if they are nominally in negative equity.”
However, the 23,200 people of you that took out those 100% mortgages represent only around 2.5% of the total mortgages given out in that period, and a much smaller percentage of the overall number of mortgages in the UK.
If a house loses its value it is not necessarily a problem unless you have to move or can no longer afford to pay your mortgage.
In a rising market banks are prepared to lend 100% mortgages as there is little risk of them not getting their money back.
Naturally, as house prices have been falling in recent months, the risks have increased and many mortgage lenders are turning you away if you don’t have a decent deposit. These days a decent depoit is anywhere between 10% and 25%.
There is a warning that the situation may deteriorate further too as Michael Saunders, head economist at Citigroup said:
“House prices are down 6% in just the last five months, and the worst of the credit crisis; all that still lies ahead.” He had originally predicted that house prices would fall by 15% in 2008 and 2009 but now he warns that the drop could be even greater.
Also, Howard Archer at Global Insight expects house prices to continue to fall for the foreseeable future. He said:
“Global Insight expects house prices to fall by 12% in both 2008 and 2009. We see significant downside risks to this forecast, particularly if the Bank of England does end up raising interest rates. “While we still expect the eventual next move in interest rates to be down, there is undeniably a growing risk that inflationary pressures could lead the Bank of England to raise them instead.”
But don’t worry, as despite hsour prices droping and a restricted mortgage market, there are still some competitive mortgage deals out there.
Also, if you are worried about the effects of negative equity or are concerned about not meeting your mortgage payments, you should also speak free of charge to a debt adviser who can provide you with advice and solutions to help you resolve your debt and credit problems.
If you are struggling with your finances then do not panic. You can also seek advice and support from these organisations:
Consumer Credit Counselling Service
Are you worried about negative equity and its effects on you?
If so, why not let us know what you plan to do about it?
Possibly Related Posts:
- Clearing up the confusion over house prices
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- Do holidays really kill the property market?
- Are mortgages tied to current accounts really such a bad idea?
- Is this a good time to buy a house?
June 13th, 2008 at 5:06 pm
So house prices to fall.
Good I hear all of you renters say.
About time say others.
Now well be able to buy our own house.
Well I have news for you.
As interest rates rise to counter inflationary pressures your house in 2 years that will be 30% cheaper in value to buy will cost you more in your pocket!
the 140k house at 7% is 9.8k interest only whereas the 98k house at 10.1% is 9.89k.
so dont think that falling house prices automatically means that owning your own home gets any easier.
However if you take the plunge you will be on your way in the next 20 years to have an asset.
what makes owning your own home feasible is strict money management. doing without in the initial stages , and working 2 even 3 jobs 7 days a week.
Hard work ,starting small ,and time .always.
These are the key elements to a property portfolio of upwards of a million pounds.
just ask me.
7 properties – next door to you wanna be millionaire.
who drives a 19 year old car hasnt had a holiday for 14 months , and started at 23. some 20 years ago.
Am I whinging knowing that im going to lose over 210k in the next 2 years. a bit, but I anticipate that the cycle will upswing in another while.
and anyway rents should pick up a bit, as more renters purchase their own homes there should be less rental stock.
So every low has a high and every high has a low.
bye
billy
June 23rd, 2008 at 3:27 pm
house price fall are direct result of tighting the belt by high street mortgage lender and withdrawal of discounted mortgage products also hesitant buyers with fear of negative equity.overall long term views are that slow house price recovery may start by next summer