Buyers at negative equity risk

Source: Construction Digital

Date :31/10/2007 09:29:37

Thousands of first-time buyers are at risk of negative equity following a dramatic increase in the number of 100 percent mortgages available

Online mortgage company mform.co.uk estimates that between January last year and August this year an estimated 33,000 first-time buyers borrowed the full value of their property, or in some cases more than it was worth.

Exposed

But the group warned that people who have taken out these loans are particularly vulnerable to house price falls, as they have no equity to cushion them if there is a drop in the value of their home.

As a result, even a small fall in house prices would leave them owing more on their mortgage than their home is worth.

The warning comes the day after the Council of Mortgage Lenders predicted there would be a 50 percent increase in the number of homes that are repossessed next year.

The trade body, which represents the mortgage lending industry, expects 45,000 homes to be repossessed during the year, a level not seen since the 1990s house price crash, and well up on estimates of 30,000 for this year.

The gloomy prediction came as property information website Hometrack reported that house prices fell by 0.1 percent during October, the first fall for two years.

At the same time, the Bank of England added to the growing body of evidence suggesting the housing market is slowing down, when it said just 102,000 mortgages were approved for house purchase during September, the lowest level since July 2005.

Reaction

Francis Ghiloni, marketing and business development director at mform.co.uk, said: "Rising property prices has meant that people need to borrow even more money to get the property they want and lenders have responded to this by dramatically increasing the number of 100 percent mortgages available.

"In April this year, our research showed that there were 92 different 100 percent mortgages to choose from, but by October 1 this had increased to 160.

October 31, 2007