The June 24, 2007 edition of The Mail on Sunday featured on article on the presence of negative equity appearing more and more these days. Negative equity is a result of a homeowner’s mortgage being greater than the value of their property and is the result of borrower’s taking out new, bigger loans.
Lenders are also contributing to the trend by offering first time homebuyers homeowner’s loans that are worth 100%-125% the value of their homes. A buyer purchasing a home for the price of 152,000 pounds could pay as much as 190,000 pounds, resulting in negative equity.
For some, buying a home with no deposit has paid off. But with the prediction of a rising interest rates and a slowdown in house prices, the risk is high. The Council of Mortgage Lenders also warns that their interest rates are hitting a fifteen-year high.
Older lenders with credit cards and other expensive debt are also in danger as lenders are offering them to consolidate all their loans into one worth 125% of the price of their property.
Negative equity had a huge impact on the housing market crash of the 1990s when 1,500 home were being repossessed every week.
Interest-only mortgages are also not helping the problem. This is where borrowers service debt but do not make any capital repayments. This is a big factor when it comes to negative equity.