Below is a transcript of my feature with Claire Bailey on the BBC Radio Swindon Breakfast Show 1 August.
What is negative equity?
Your house is worth less than the mortgage you got to buy it.
When does it occur?
When house prices fall. The Telegraph said yesterday 1.7m home owners or 1/7 of the total were already affected ! There has been a 9% fall from last year’s peak (Halifax house price figures). A Standard & Poor’s survey predicts the market could fall by up to 26.8%.
Who is the worst hit by negative equity?
1 People who bought houses at the peak of the market last year and especially those who took out 100+% mortgages such as the infamous Northern Rock Together product. It allowed people to get houses when they didn’t earn enough.
2 Those in averagely priced homes…the top & cheap ends of the market haven’t been affected.
3 People who dabbled in Buy to let property..again bought at the top of the market
Does it happen often?
The last time was in the early 1990s.
Why have house prices fallen?
House price inflation was around 10% for most of the last decade. This is ultimately unsustainable. The people who drive the market..first time buyers can’t afford to buy.
Plus the impact of the most used financial term of the last year…the credit crunch.
First time buyers can’t get mortgages because banks aren’t lending money….certainly not 100+% mortgages.
What should you do?
Wait, sit tight. House prices will fall until the bottom is reached. At that point first time buyers will be able to afford properties.
The mortgage market will recover too…