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 homebuyers).
At the depth of the last housing market recession in 1993, the CML says 1.5m households or more were estimated to have negative equity.
Most sat tight, saved, continued to pay their mortgages and eventually recovered their equity position and the CML expects many to do the same now.
It says one myth that tends to persist is that there is a strong causal link between negative equity and mortgage repayment problems, when there is not.
It believes payment problems 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 households need to move, or are also experiencing repayment difficulties.
While reduced and negative equity are likely to constrain the ability of affected households to move house, 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.
Bob Pannell, head of research at the CML, says: “Although negative equity has resurfaced as house prices have fallen, one big difference from the early 1990s downturn is that it is less concentrated among young, first-time buyers, and more evenly spread across wider age groups and those at different points on the housing ladder.
“Negative equity will contribute to subdued property turnover, but otherwise should have few adverse effects for the majority of households affected. Where people needs to move house for job or other priority reasons, lenders can often be flexible to existing borrowers with low or negative equity, as long as their financial position is sound and they have a good payment track record.
“Otherwise, sitting tight and building up savings or overpaying on the mortgage are the strategies most borrowers are likely to adopt. It should be easier for households to rebuild their equity position than in the early 1990s, as low interest rates on their mortgage can help them to save or overpay more quickly.”