February 8, 2025
‘Cost of owning crisis’ as 50,000 plunges into negative equity

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fall in house prices

Homeowners are facing the “cost of owner crisis” as rapidly falling home prices are pushing thousands into negative equity.

The National Institute of Economic and Social Research (NISR) said the sharp drop in house prices in August meant 50,000 people had been hit by the crisis in the past 12 months.

It comes as Nationwide said last week that house prices were falling at the fastest rate in 14 years. Average prices fell by 5.3 per cent in August compared to the same month last year when prices were at their peak.

The slowdown is the sharpest since July 2009 when the global economy plunged into the depths of the financial crisis.

Negative equity is where the value of a property is less than the value of the mortgage attached to it. This can make it difficult to sell or mortgage a property, leaving homeowners facing higher monthly payments when they close fixed-rate deals.

Max Mosley, an economist at Nicer, said: “Mortgage holders across the country have been hit by Covid, the cost of living crisis and now the cost of ownership crisis.”

The NICER figures are based on an analysis of the official Wealth and Assets Survey conducted by the Office for National Statistics (ONS).

Far fewer households are in negative equity than in the financial crisis, when prices fell by 20 percent and many more households mortgaged using small or even zero deposits.

However, many more families are likely to run into trouble in the coming months. The government’s independent tax and spending watchdog, the Office of Budget Responsibility (OBR), expects home prices to fall as much as 10 percent from their recent peak.

The Resolution Foundation said last year that 190,000 households would be in negative equity if prices fell by just 8 percent.

Officials at Nationwide told lawmakers on a Treasury select committee last month that around 2 per cent of its customers took out mortgages with 10 per cent or less down deposit, leaving them particularly vulnerable to a big drop in house prices.

However, Henry Jordan, Nationwide’s home commercial director, said in July that he expected anyone who fell into negative equity to be there “for a fairly short period of time” before values ​​rebound. This is unlikely to be a problem for people who intend to stay in their homes for several years, when house prices are expected to recover, he said.

Home prices are falling fast as the cumulative effect of repeated rate hikes is on the property market.

Data from the Bank of England last week showed the number of mortgage approvals fell to a five-month low in July.

Officials have warned that almost four million mortgage borrowers will face a sharp increase in monthly payments by the end of 2026, including one million who will face a rise of at least £500 a month.

However, there are also signs that interest rates are nearing a peak, which will limit potential mortgage shocks. The Bank’s chief economist Hugh Pill indicated this week that he would not vote to raise interest rates any further than the current level of 5.25 percent.

While Mr Pill said inflation remained high at 6.8 per cent, he suggested that keeping rates high longer would be enough to bring price growth back to the bank’s 2 per cent target by 2025.

Source

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