Policy Hub
On 17 April 2009, the Council of Mortgage Lenders (CML) published a research paper (Homeowner housing equity through the downturn) which suggests that around a million UK homeowners are experiencing negative equity due to falling house prices.
The paper observes that at the depth of the last housing market recession in 1993, about 1.5 million households were estimated to be burdened with negative equity. Most sat tight, saved, continued to pay their mortgages and eventually recovered their equity position. According to the Council of Mortgage Lenders, this is what most of today's borrowers with reduced or negative equity are doing.
The paper suggests that about 900,000 home-owners currently have some degree of negative equity, although the majority of these - around two thirds - face only modest shortfalls of less than 10% (equating to around £6,000 for those first-time buyers with negative equity, and £8,000 for other home-buyers).
Insisting that there is no strong causal link between negative equity and mortgage repayment problems, the paper argues that payment difficulties are typically associated with unexpected spending commitments, reduced income and changes in household circumstances. Negative equity, on the other hand, only surfaces as a problem if householders need to move, or are also experiencing repayment difficulties.
While reduced equity and negative equity are likely to constrain the ability of affected households to move, the overall scale and impact of this for the market as a whole needs to be kept in perspective. Even in today's weaker market, the CML estimates that home-owners still have around £2.1 trillion of unmortgaged housing equity.