"Soaring mortgage rates, combined with falling house prices"
Over 10,000 homeowners in the UK are in danger of becoming mortgage prisoners, according to recent data.
Financial Conduct Authority (FCA) statistics reveal a doubling in the number of properties purchased with a mortgage representing 95% or more of the home value in the past year, while the Office for Budget Responsibility anticipates a 7% decline in house prices by year-end, putting these properties at heightened risk of negative equity.
According to a report by The Telegraph, only 2.26% of homes were acquired with a loan-to-value (LTV) ratio of 95% in 2021, but the FCA projects this figure to have risen to 4.25% in 2023.
This shift implies that 10,650 homeowners could be susceptible to negative equity if house prices witness a decline.
“Soaring mortgage rates, combined with falling house prices, are creating a negative equity ticking time bomb,” said Sarah Olney, the Liberal Democrat spokesman for the Treasury, voicing her concerns about the situation. “Those falling into negative equity face becoming mortgage prisoners, trapped in their home and at risk of being hit by higher rates.
Negative equity occurs when a property’s value drops below the borrowed amount, potentially leading to individuals becoming mortgage prisoners, who face challenges in selling their property without a substantial payment to the lender. Additionally, remortgaging becomes problematic, potentially forcing them on to more expensive rates when fixed rate mortgage deals expire.
Olney has called for government intervention to assist homeowners facing these challenges, emphasising the need for a plan to address the issue.
“Ministers and the regulator need to come up with a plan to help homeowners on the brink,” The Telegraph quoted Olney as saying. “The Conservative government crashed the economy and sent mortgage rates through the roof, they have a responsibility to help those now paying the price.”
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