Borrowers at risk of negative equity

New figures suggest over one million homeowners could be in negative equity as a result of house price falls.

According to the Council of Mortgage Lenders, 900,000 people had a home worth less than their mortgage debt at the end of 2008.

But new research by the group, which represents most major lenders, suggests 1.18 million people faced the problem at the end of February.

It also warns that this could reach as many as 1.5 million households, a similar number that were in negative equity at the depth of the last housing market recession in 1993.

However, James Tatch, senior statistician at the CML, said that two-thirds of those currently facing the problem only face modest shortfalls of less than 10%, equivalent to around £6,000 for first-time buyers and £8,000 for other home owners.

Bob Pannell, CML head of research, said: "One big difference from the early 1990s downturn is that it is less concentrated among young, first-time buyers, and more evenly spread across wider age groups and those at different points on the housing ladder.

"Negative equity will contribute to subdued property turnover, but otherwise should have few adverse effects for the majority of households affected."

A report by Mr Tatch claims around 13% of the people who took out mortgages between the second quarter of 2005 and the end of 2008 had negative equity, but those who entered deals in the second and third quarters of 2007 were most likely to be affected.

Figures show that some areas of the country are suffering negative equity worse than others.

In the North around one in 10 homeowners are estimated to be in negative equity, but East Anglia, which suffered badly in the 1990s, has remained relatively unscathed (0.9%).

Borrowers in Scotland have also remained largely unaffected, where just 1% of total owner occupiers are in negative equity.