Home owners in negative equity could be stuck for years

Home owners who bought at the peak of the market in 2007 are likely to experience continued negative equity until 2014, says the National Housing Federation

The Federation, which represents England’s housing associations, says it fears an entire generation of people could be locked out of the housing market as a result of high house prices.

Home owners who purchased a property in England at the 2007 peak of the market paid an average price of £216,800.

But they are being warned they will have to wait until 2014 – when average prices are predicted to hit £226,900 – before they recover what they paid for their home seven years earlier.

Oxford Economics forecasts house prices would increase 22% over the next five years, fuelled by a chronic under supply of new housing.

It says house prices will rise 7.5% this year, but will then fall again in 2011 by 3%, before recording a modest increase of 0.9% in 2012.

House prices will then increase by 4% in 2013, 5.4% in 2014, and 4.9% in 2015 – 22% higher than they were in 2009.

David Orr, chief executive of the National Housing Federation, says: “For those who bought at the peak of the housing boom, there’s a strong possibility that they will have to wait another four years before their home is actually worth what they paid for it.

“But house prices will inevitably increase in the long term because of huge under-supply of housing. Even though price rises look sluggish for the next few years, affordability is not improving for many low-to-middle income households – as banks continue to restrict their mortgage lending and house prices remain historically expensive in relation to salaries.”

“There’s a very real risk that an entire generation will be locked out of the housing market for the foreseeable future and people will increasingly look to buy or rent an affordable home instead.”

And the chronic shortage of social housing will leave those shut out of the home ownership market with little realistic chance of getting a social home.

Despite the recent recession, house prices nationally are still 19% higher than five years ago and 120% higher than 10 years ago.

More than 1.76m households, or the equivalent of 4.5 million people, were on social housing waiting lists in 2009, a 23% increase in the last five years.

Oxford Economics says the average house price in London will be £375,000 and £151,700 in the North East by 2015.