Negative equity for four years
Negative equity has raised its ugly head again as the “National housing federation ” (NHF) has said this week that those homeowners who bought their homes in the peak of the market will suffer negative equity for up to four years.
The peak of the market was in 2007 when the average house price was £216,800. The number of mortgages available are extremely limited and the banks continue to play there part in our housing market by limiting funding.
Bank of England figures show that the number of mortgage approvals are barely rising and the amount of money lent for mortgages was a meagre £86 million, one of the lowest figures ever recorded.
The fear of job losses and the continued cutbacks from the government are sending a spine chilling fear throughout the average homeowner. The recovery seems prolonged but there seems a deserved hangover after the excesses of the last decade.
Forecasts
According to the NHF, house prices in England will dip again next year by 3%, before steadily climbing thereafter.
The federation expects prices to be 22% higher by 2015 than they were in 2009, bringing the average price of a house to £226,900.
Net mortgage lending rose by only £86m in July, one of the lowest monthly increases on record.
“The Bank’s July mortgage figures offer further evidence of a stabilisation in the level of home loans,” said Brian Murphy of mortgage brokers the Mortgage Advice Bureau.
“The October Spending Review — D-Day for consumer confidence — is approaching fast and many prospective borrowers are understandably being cautious.”
Forecasts
According to the NHF, house prices in England will dip again next year by 3%, before steadily climbing thereafter.
The federation expects prices to be 22% higher by 2015 than they were in 2009, bringing the average price of a house to £226,900.
The NHF, which represents housing associations in England, said in its report that prices are still too high for many buyers.
Unless homeowners wish to sell their property, being in negative equity – when your home has become worth less than the mortgage secured against it – does not necessarily pose a problem.
But it is when people are looking to move that they can face a struggle, as lenders are entitled to insist that borrowers redeem their loans.
In theory, if the mortgage is worth more than the house and the borrowers cannot find the money elsewhere, they will be prevented from moving.
‘Perfect storm’
The Royal Institution of Chartered Surveyors has said that house prices are starting to fall, while figures from the Land Registry suggest that prices are levelling off, two very different views.
The accountancy firm PricewaterhouseCoopers expects prices to be flat for the second half of 2010, and warned that they might not reach the levels seen at the peak of the market for another decade.
“A combination of circumstances in the market have made it very, very difficult for house prices to recover,” NHF chief executive said.
“But actually the big problem that we have is that we’ve created a kind of perfect storm where there is negative equity for some people and they’re trapped and can’t move, but prices haven’t come down enough to make buying a home a realistic option for people in their 20s and 30s in ordinary jobs.
“We really are in danger of pricing people out of owner-occupation.”
He also criticised government decisions to scrap regional house-building targets and withdraw funding for affordable housing.
“Proposed caps on housing benefit payments could also put nearly a million people on low incomes at risk of losing their home,” he added.
The market is further complicated by the regional variations, London is booming whilst the north is receding.
