View more on these topics

Three million Brits could be in negative equity

The number of UK home owners in negative equity could be closer to three million than the 900,000 estimated by the Council of Mortgage Lenders, according to property forecaster Calnea Analytics.

Calnea provides housing market information and analysis to mortgage lenders, surveyors and estate agents, and also prepares data for the Land Registry’s monthly house price index.

The CML’s figure of 900,000 households in negative equity only includes information on first charge residential mortgages, whereas when buy-to-let and properties with second charge loans are accounted for the number almost trebles, according to Calnea.

The forecaster believes there were 2.1 million mortgages in negative equity last December, and that this figure rose to 2.7 million in March. The maximum potential losses if all these cases were to default would add up to £82bn, based on the March figure.

Calnea predicts that arrears and repossessions will increase significantly in the next three or four years.

Losses arising from these market stresses would represent a significant proportion of existing regulatory capital which means that peak losses would be seen around 2013.

Securitised mortgages are showing significantly higher levels of arrears than other types and lenders are quicker to resort to repossession in these cases than with mortgages held by originators, Calnea’s findings show.

The firm released its findings in conjunction with the launch of the valuation model it applied to lenders’ books to generate its statistics.

It claims this is the first independent service to allow lenders to accurately project the value of their mortgage books based on assumptions about default rates and changes in property values in the recession.

Calnea stresses its figures reflect average market losses and says those experienced by individual lenders will vary according to region, loan type exposure and customer profile.

Troy Martin, director of Calnea, said: “There is a fundamental difference between our data and the CML’s – its only looks at regulated first charge loans whereas ours also takes buy-to-let and second charge lending into account.

“With regard to our valuation system, market change is inevitable and those with access to the most accurate information are best placed to handle it.”

He added: “Our service provides a strategic advantage at a critical time, especially in view of the downgrading of lenders by ratings agencies.”

The CML says some 900,000 home owners are currently in negative equity to some degree.

It says the majority of these – around two-thirds – face only modest shortfalls of less than 10%, equating to around £6,000 for first-time buyers and £8,000 for others.

Nick Pearson, director of external affairs at Paymex Group, said: “Many consumers have taken out further borrowings in recent times and debts secured against property are bound to impact heavily on equity.

“This applies particularly to secured loans taken out in the past couple of years so it’s possible that Calnea’s figures could be correct.”

Recommended

Act today so you can benefit tomorrow

While the headlines continue to report tumbling profits and downward sales trends in many industry sectors, is there a glimmer of hope for the property market?

Some party

But it’s not all doom and gloom. Mole was pleased to hear that Alan Cleary, managing director of Exact, and Ian Lonergan, chief executive officer of Exact, partied in style to celebrate their own 40th birthdays.

Frexit & contagion risk in Europe

Many commentators have suggested the UK’s exit from the European Union will trigger a domino effect, leading to its eventual break-up. Neptune Head of European Equities Rob Burnett discusses the likelihood of this happening. Click here to read more Important informationInvestment risks Neptune funds may have a high historic volatility rating and past performance is […]

Newsletter

News and expert analysis straight to your inbox

Sign up