900,000 in negative equity

House with percentage signs

Around 900,000 homeowners are now in negative equity as a result of falling house prices, with some people owing up to £37,000 more than their home is worth.

While the majority of these face shortfalls of 10% or less, around one-third owe considerably more than their home is worth. The majority of first-time buyers are in negative equity to the tune of £6,000 while homeowners further up the chain owe around £8,000. However, those with larger shortfalls could currently owe up to £37,000 more than their property is worth.

Negative equity is when the mortgage outstanding on a property is more than its market value. Falling house prices have pushed thousands of homeowners into negative equity, with first-time buyers and people who borrowed a high proportion of their property’s value particularly affected.

However, the Council of Mortgage Lenders (CML), which has produced the figure, says that unlike the housing market crash in the 1990s – which predominantly hit younger borrowers – the current downturn is causing homeowners from across the board to fall into negative equity.

James Tatch, senior statistician at the CML, says there is a significant proportion of older borrowers in negative equity, with almost a quarter of borrowers now in negative equity aged 40 or above when they took out the mortgage. 

“There is no clear link between younger borrowers and greater extent of negative equity,” he adds.

The CML’s stats show 25 to 29-year-olds are suffering the most from negative equity, closely followed by those aged between 30 and 34.

Despite the large number of people currently in negative equity, the CML points out that, historically, the current situation is certainly no worse than that seen in the 1990s. At the depth of the last housing market recession in 1993, 1.5 million households or more were estimated to have negative equity.

"Although negative equity has resurfaced as house prices have fallen, one big difference from the early 1990s downturn is that it is less concentrated among young, first-time buyers, and more evenly spread across wider age groups and those at different points on the housing ladder,” says Bob Pannell, head of research at the CML.

But with house prices looking likely to continue falling for some time, a question mark remains over how many households will be affected in total.

Last October, Ed Stansfield, property economist at Capital Economics, estimated that 2.5 million households would be left with some degree of negative equity as a result of the current downturn. In light of the CML’s figures, and expectations of house price falls of up to 40%, Stansfield warns this might be an underestimation.

“However, with house prices still falling, the extent of negative equity is only likely to get worse,” he adds. “If we are right and prices drop 40% or more, negative equity could plausibly affect 3.75 million households or almost one-in-three mortgages.”

Regional variations show negative equity cases are most concentrated in the North, with nearly 10% of homeowners affected:

Region Homeowners in
negative equity
North 9.2%
Yorkshire & Humberside 6.7%
East Midlands 5.4%
East Anglia 0.9%
Greater London 6.5%
South East 5.7%
South West 4.3%
West Midlands 4.6%
North West 5.5%
England 5.2%
Wales 6.1%
Scotland 1%
Northern Ireland 4.8%
UK 4.8%

The most important point to remember is that there is no correlation between negative equity and repayment problems. While owing more than your home is worth will limit your ability to remortgage or move home, in itself it shouldn’t affect your ability to keep up with mortgage payments.

The CML says that it is vital borrowers do not voluntarily give up possession of their property when negative equity arises as they remain liable for any shortfalls.

Stansfield says: “If households use the low interest rate environment as an opportunity to overpay on their mortgages, thus accumulating equity more rapidly, [our negative equity predictions] could prove too high.”

And Pannel advises: "Where people need to move house for job or other priority reasons, lenders can often be flexible to existing borrowers with low or negative equity, as long as their financial position is sound and they have a good payment track record.

"Otherwise, sitting tight and building up savings or overpaying on the mortgage are the strategies most borrowers are likely to adopt. It should be easier for households to rebuild their equity position than in the early 1990s, as low interest rates on their mortgage can help them to save or overpay more quickly."