Commenting on the Bank of England’s announcement that one in ten homeowners may now be in negative equity, he said: “It is a shame this report has been published now at a time when there have been positive moves in most other areas in the mortgage market. Whilst a reduction in house prices may have an effect on a lenders balance sheet, it is only an issue for home owners if they wish to sell up and move.
“Many home owners may well have improved properties so the value is higher than an average figure for that particular post code. To compare the 1990s and now is also questionable as they are two different economic situations. People facing negative equity then were also facing interest rates of 10%+. There were fewer controls on lending and loan sizes were based on income irrespective of other debts. Borrowers eventually just couldn’t afford the repayments.
“In today’s market lenders look at affordability and also consider future payments after an initial rate has expired so most people can still afford their mortgage regardless of the value and this is confirmed by the low level of arrears and repossessions. There will always be people who over extend themselves and of course unemployment will have an effect but generally lending is more sensible and people may have to stay put for a bit longer than they planned before values rise again - which they inevitably will.
“We are also in a period of low rates and a lot of people have seen monthly payments slashed although a good percentage are on fixed rates. These people though will still be within monthly budgets. Borrowers coming to an end of their initial rate may have difficulty moving mortgages if the value has fallen but lenders are more proactive at keeping existing customers so will generally be offered a reasonable deal to stay. With standard rates so low most people can sit on a variable rate and decide when to commit to a new deal but until then there is no reason to panic unless circumstances are forcing you to sell at a loss.”
