Negative equity is when the value of a property is less than the value of the mortgage loan attached to it. It may be difficult to sell a property or refinance a mortgage, and homeowners may end up paying higher monthly payments if they end a fixed-rate contract.
“Mortgage holders across the country have had to endure COVID-19, a cost of living crisis, and now a cost of ownership crisis,” said Max Mosley, an economist at Nieser.
Mr Kieser’s figures are based on analysis of the official Wealth and Assets Survey carried out by the Office for National Statistics (ONS).
Far fewer households are in negative equity than during the financial crisis, when prices fell 20% from peak to trough and more households were taking out mortgages with small or no deposits. did.
But many more households may face hardship over the next month. The Government’s independent tax and spending watchdog, the Office for Budget Responsibility (OBR), expects house prices to fall by 10% from recent peaks.
The Resolution Foundation announced last year that if prices fell by just 8%, 190,000 households would be in negative equity.
National executives last month told MPs on the Treasury Select Committee that around 2% of customers take out mortgages with down payments of 10% or less, making them particularly exposed to a significant drop in house prices. he said.
But Henry Jordan, Nationwide’s home commercial director, said in July that he expected those who fell into negative equity to remain there for a “fairly short period of time” until their value recovered. He added that this is unlikely to be a problem for people who plan to stay in their homes for several years, when house prices are expected to recover.
House prices are falling rapidly as the cumulative effect of repeated interest rate hikes hits the real estate market.
The number of mortgage approvals in July fell to a five-month low, the Bank of England announced last week.
The authorities have warned that around four million mortgage borrowers will face sharp increases in their monthly repayments by the end of 2026, with one million of them facing an increase of at least £500 a month.
However, there are signs that interest rates are nearing their peak, which should limit the potential for a mortgage shock. The central bank’s chief economist, Hugh Pill, suggested this week that he may not vote to raise interest rates further from their current level of 5.25%.
Pill said inflation remained high at 6.8%, but keeping interest rates high for a longer period of time would bring inflation back to the central bank’s 2% target by 2025. suggested that it was sufficient.