Much airtime and column inches have been devoted to the Council of Mortgage Lenders’ latest comments about borrowers in negative equity.
It estimates that about 900,000 home owners are in some degree of negative equity, although the majority of these – some two-thirds – face only modest shortfalls of less than 10%. 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.
Now, negative equity is a problem for all points on the housing ladder, with it more evenly spread across wider age groups and those at different points on the housing ladder.
The trade body claims that the only result of all this negative equity will be subdued property turnover, with few adverse effects for the majority of households affected.
If consumers need to move house for their job or other reasons, the CML says 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 record.
It adds that sitting tight and building up savings or overpaying on the mortgage are strategies most borrowers are likely to adopt.
Finally it goes on to add that 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.
No offence to the CML but is this really the case? Where people need to move home, even if they have exemplary payment and credit histories, if they can’t put down at least 10% they don’t stand a snowball’s chance in hell of getting a new mortgage with their existing lender or a new one.
I have never heard of a lender offering even existing borrowers a mortgage in the hope that their equity share will increase eventually.
And on remortgages, would someone lend at 60% LTV rates to existing borrowers who find themselves on 85% LTV now because of falling house prices but whose property could, of course, go up in the future?
Also, how many clients are overpaying on their mortgage in the hope that their equity will increase? I’d love to see the statistics on that one.
Of course there will be the sensible few who are busy overpaying or even squirreling away some cash somewhere.
But I’d be willing to bet money that the majority of borrowers whose payments have fallen drastically over the past year – and bear in mind that we still have plenty of people on fixed rate deals – are simply thanking god that it is easing their day-to-day cash flow issues.
Everything else is costing more so when mortgage repayments go down, what do most people do?
Everyone keeps hoping for some good housing market news and positive press and I understand the spin being used here.
But doesn’t this simply paint a rose-tinted view for the public on their options?