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Negative Equity Hits One In Six Prime Mortgages

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Negative equity hits one in six prime mortgages

Sunderland hardest hit as new figures reveal the extent of UK's negative equity crisis

* Patrick Collinson and Hilary Osborne

* guardian.co.uk, Tuesday 23 June 2009 11.24 BST

* Article history

Nearly one in six "prime" mortgages in the UK have fallen into negative equity, according to ratings agency Fitch. Households in Sunderland and Northampton are suffering most from the property crisis, it reveals.

Northern Rock has the most once-prime loans now in negative equity, said Fitch, with 32% of the mortgages in its controversial "Granite" book higher in value than the homes they are secured against.

The lender had specialised in offering 125% "Together mortgages" which combined a 100% home loan with a personal loan and were aimed at first-time buyers struggling to get on to the property ladder.

Bradford & Bingley, Birmingham Midshires and Alliance & Leicester – lenders the taxpayer has had to rescue – all have books of mortgages where one in five loans are in negative equity, said the report.

In a geographical analysis, Fitch found Northampton, Nottingham, Derby and Peterborough were the areas with the highest concentration of negative equity. In Northampton, 23.6% of mortgages are now bigger than the value of the property they were used to buy.

But it is a postcode in Sunderland, SR1, which is the UK's epicentre of negative equity. Fitch said that in the SR1 part of the city 43.7% of mortgages (by value) are higher than the current price of the property, and 28.1% by number.

On average, the debt over and above the mortgage in SR1 is just under £6,000. In contrast, in the Cambridgshire towns and villages covered by the postcode CB25, where 27.6% of mortgages are in negative equity, the average amount is £13,369.

Toxic loans

Fitch's analysis suggests the underlying state of Britain's property market may be less healthy than the recent reports of green shoots across the country claim.

It looked into the "residential mortgage backed securities" which were a popular device used by banks and building societies to expand their lending during the long boom. The lenders packaged their loans into books of "prime" business which were then marketed as "triple A" securities for investors.

It has long been known that "sub-prime" securitised books were in trouble – these included self-certified mortgages and loans to borrowers with poor credit histories – but the Fitch report suggests that even "prime" books of business will now be regarded as "toxic" and a drag on bank balance sheets.

Fitch said that 15% of the loans in "Prime RMBS master trust programmes" have fallen into negative equity, and forecasts that will increase to 34%.

"Even assuming that house prices see a modest recovery from their lowest levels, most RMBS transactions are likely to have a sizeable proportion of borrowers in negative equity for some time to come," said Alastair Bigley, at Fitch.

For borrowers, Fitch said the sharp rise in negative equity means that households will be unable to remortgage on to better loan deals when the term of their deal expires.

"Currently, assuming an LTV [loan to value] of 75% or lower is needed to remortgage at an attractive rate, 50% of loans by value (and 35% of borrowers) do not have enough equity to be able to do so. If average house prices fell 30% from their peak then the figure is likely to rise to 62% by value (and 45% based on number of borrowers)."

On a more positive note, it said that borrowers in Scotland have the least negative equity, with Glasgow named as the city with the lowest number of loans in crisis.

Fitch added that Barclays has the fewest loans in trouble, with its "Gracechurch" book still 99% in positive territory.

Mortgage approvals

Separately, figures for new mortgages published today by the British Bankers' Association showed the number of mortgages approved for house purchases rose to its highest level in 13 months in May.

A total of 31,162 loans were approved for house purchases, 16% more than in May 2008.

However, falling house prices and lenders' insistence on larger deposits pushed the average value of house purchase loans down 14% to £133,600.

Despite a steady rise in the number of mortgage approvals for purchases since last November, the overall lending figures fell to their lowest level since February 2001, with total advances of £7.7bn.

Net lending, which strips out redemptions and repayments, also fell for the third month in a row to £2.3bn, a level last seen in early 2001 when the average mortgage taken out for house purchase was just £74,400.

The main driver for the falls has been a sharp drop in the number of people remortgaging. The number of remortgages approved in May dropped to 24,847 – 60% below the figure for May 2008.

The top five postcodes in negative equity

•SR1 (Sunderland) 28.1% of loans in negative equity by an average of £5,947

•HU2 (Hull) 27.2% of loans in negative equity by an average of £4,545

•CB25 (Cambridgshire) 27.6% of loans in negative equity by an average of £13,369

•B2 (Birmingham) 31.2% of loans in negative equity by an average of £4,709

•NP24 (Newport) 26.7% of loans in negative equity by an average of £4,910

Negative equity hits one in six prime mortgages

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this is awesome news!!!!

combined with rising unemployment and failing stocks this surely means that house prices are going to go up even more!!! Hoooorah for HPI!!!

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this is awesome news!!!!

combined with rising unemployment and failing stocks this surely means that house prices are going to go up even more!!! Hoooorah for HPI!!!

well said. my thoughts exactly. I'm going right now to buy 10.

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Negative equity hits one in six prime mortgages

...

The top five postcodes in negative equity

•SR1 (Sunderland) 28.1% of loans in negative equity by an average of £5,947

•HU2 (Hull) 27.2% of loans in negative equity by an average of £4,545

•CB25 (Cambridgshire) 27.6% of loans in negative equity by an average of £13,369

•B2 (Birmingham) 31.2% of loans in negative equity by an average of £4,709

•NP24 (Newport) 26.7% of loans in negative equity by an average of £4,910

Negative equity hits one in six prime mortgages

Hi thanks for the link - Interesting article

Those Negative equity amounts ( With the exception of Cambridge ) look very low?

I know the figures above are averages but to get to negative equity of just £5k that would imply a fairly low purchase price and a low LTV??

Eg Someone bought a property for £100k with an 85% mortgage - With a 20% fall in prices, this would give negative equity of £5k

This would imply that perhaps not all borrowers took very high LTVs - I would expect negative equity to be much higher than this?? Any thoughts?

M21er

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Hi thanks for the link - Interesting article

Those Negative equity amounts ( With the exception of Cambridge ) look very low?

Why low? 25% of property owners have no mortgage. Many others will have bought years ago. Others will have low LTVs.

Prices are back to 2004 levels, so a proportion of those who bought/mewed in the past 5 years are the ones most likely to be in Neg Equity.

Many in Neg Equity will still be able to pay the low mortgage rates - for the time being. Therefore they won't be putting their properties on the market - yet.

Things will get nasty for them as unemployment and interest rates rise. I pity them up to a point, depending on how reckless they may have been in borrowing.

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I live in Northamptonshire, so 1 in 5 prime mortgages in negative equity here is significant.

And the biggest predictor for repossesions is negative equity.

1 in 5 houses at risk of repossession.

Nasty.

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Why low? 25% of property owners have no mortgage. Many others will have bought years ago. Others will have low LTVs.

Prices are back to 2004 levels, so a proportion of those who bought/mewed in the past 5 years are the ones most likely to be in Neg Equity.

Many in Neg Equity will still be able to pay the low mortgage rates - for the time being. Therefore they won't be putting their properties on the market - yet.

Things will get nasty for them as unemployment and interest rates rise. I pity them up to a point, depending on how reckless they may have been in borrowing.

Hi h_r

I assumed that the average amount of negative equity quoted was for those who were actually in negative equity. To include people who don't have negative equity would not make sense.

Eg I own my house outright but next door to me was bought for £280k in August 2007 - Its current value is around £220k - If they bought with an 85% mortgage, they will have negative equity of £18k. This is a significant amount and could seriously affect their ability to sell the property - they need to raise £18k just to offload the property.

To say that between us, we have an average of £9k of negative equity is meaningless.

M21er

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Hi thanks for the link - Interesting article

Those Negative equity amounts ( With the exception of Cambridge ) look very low?

I know the figures above are averages but to get to negative equity of just £5k that would imply a fairly low purchase price and a low LTV??

Eg Someone bought a property for £100k with an 85% mortgage - With a 20% fall in prices, this would give negative equity of £5k

This would imply that perhaps not all borrowers took very high LTVs - I would expect negative equity to be much higher than this?? Any thoughts?

M21er

The places with the greatest actual (as opposed to mathematical calculated) negative equity are likely to be those with the greatest number of "luxury apartments" built in the past 5-10 years. As many of these were sold off plan, flipped and bought above market value by naive "investors" these will have the greatest Negative Equity.

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I have to sell a house for probate. One of the neighbours had a word with me and told me not to sell it cheaply as it would devalue all the neighbours houses.

VMR.

Perhaps the neighbours could have a whip round to compensate you for the amount you would lose eventually by keeping the property on the market in the meantime at an unrealistically high asking price?

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Perhaps the neighbours could have a whip round to compensate you for the amount you would lose eventually by keeping the property on the market in the meantime at an unrealistically high asking price?

I'd tell them to f*ck themselves frankly - but then I never was popular...

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I have to sell a house for probate. One of the neighbours had a word with me and told me not to sell it cheaply as it would devalue all the neighbours houses.

VMR.

Did you ask how you where going to beat the market price?

If they know how to do this I'm sure a lot of people would be interested.

You could also offer to the neighbours that if you can't sell it you'll rent it out to travellers just so the property price isn't affected.

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I'd tell them to f*ck themselves frankly - but then I never was popular...

Does this matter anyway, if you don't actually live there

tim

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Quick question - what makes a 'prime' mortgage? I've always assumed sub-prime were high LTV (>95%) high multiplier (5x +) mortgages given to people with no proof of income etc. What is the tipping point that makes a mortgage 'prime' rather than 'sub-prime'?

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Quick question - what makes a 'prime' mortgage? I've always assumed sub-prime were high LTV (>95%) high multiplier (5x +) mortgages given to people with no proof of income etc. What is the tipping point that makes a mortgage 'prime' rather than 'sub-prime'?

Bearing in mind where you're living, why do you care what constitutes a prime mortgage? :P

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Negative equity hits one in six prime mortgages

Sunderland hardest hit as new figures reveal the extent of UK's negative equity crisis

* Patrick Collinson and Hilary Osborne

* guardian.co.uk, Tuesday 23 June 2009 11.24 BST

* Article history

Nearly one in six "prime" mortgages in the UK have fallen into negative equity, according to ratings agency Fitch. Households in Sunderland and Northampton are suffering most from the property crisis, it reveals.

Northern Rock has the most once-prime loans now in negative equity, said Fitch, with 32% of the mortgages in its controversial "Granite" book higher in value than the homes they are secured against.

The lender had specialised in offering 125% "Together mortgages" which combined a 100% home loan with a personal loan and were aimed at first-time buyers struggling to get on to the property ladder.

Bradford & Bingley, Birmingham Midshires and Alliance & Leicester – lenders the taxpayer has had to rescue – all have books of mortgages where one in five loans are in negative equity, said the report.

In a geographical analysis, Fitch found Northampton, Nottingham, Derby and Peterborough were the areas with the highest concentration of negative equity. In Northampton, 23.6% of mortgages are now bigger than the value of the property they were used to buy.

But it is a postcode in Sunderland, SR1, which is the UK's epicentre of negative equity. Fitch said that in the SR1 part of the city 43.7% of mortgages (by value) are higher than the current price of the property, and 28.1% by number.

On average, the debt over and above the mortgage in SR1 is just under £6,000. In contrast, in the Cambridgshire towns and villages covered by the postcode CB25, where 27.6% of mortgages are in negative equity, the average amount is £13,369.

Toxic loans

Fitch's analysis suggests the underlying state of Britain's property market may be less healthy than the recent reports of green shoots across the country claim.

It looked into the "residential mortgage backed securities" which were a popular device used by banks and building societies to expand their lending during the long boom. The lenders packaged their loans into books of "prime" business which were then marketed as "triple A" securities for investors.

It has long been known that "sub-prime" securitised books were in trouble – these included self-certified mortgages and loans to borrowers with poor credit histories – but the Fitch report suggests that even "prime" books of business will now be regarded as "toxic" and a drag on bank balance sheets.

Fitch said that 15% of the loans in "Prime RMBS master trust programmes" have fallen into negative equity, and forecasts that will increase to 34%.

"Even assuming that house prices see a modest recovery from their lowest levels, most RMBS transactions are likely to have a sizeable proportion of borrowers in negative equity for some time to come," said Alastair Bigley, at Fitch.

For borrowers, Fitch said the sharp rise in negative equity means that households will be unable to remortgage on to better loan deals when the term of their deal expires.

"Currently, assuming an LTV [loan to value] of 75% or lower is needed to remortgage at an attractive rate, 50% of loans by value (and 35% of borrowers) do not have enough equity to be able to do so. If average house prices fell 30% from their peak then the figure is likely to rise to 62% by value (and 45% based on number of borrowers)."

On a more positive note, it said that borrowers in Scotland have the least negative equity, with Glasgow named as the city with the lowest number of loans in crisis.

Fitch added that Barclays has the fewest loans in trouble, with its "Gracechurch" book still 99% in positive territory.

Mortgage approvals

Separately, figures for new mortgages published today by the British Bankers' Association showed the number of mortgages approved for house purchases rose to its highest level in 13 months in May.

A total of 31,162 loans were approved for house purchases, 16% more than in May 2008.

However, falling house prices and lenders' insistence on larger deposits pushed the average value of house purchase loans down 14% to £133,600.

Despite a steady rise in the number of mortgage approvals for purchases since last November, the overall lending figures fell to their lowest level since February 2001, with total advances of £7.7bn.

Net lending, which strips out redemptions and repayments, also fell for the third month in a row to £2.3bn, a level last seen in early 2001 when the average mortgage taken out for house purchase was just £74,400.

The main driver for the falls has been a sharp drop in the number of people remortgaging. The number of remortgages approved in May dropped to 24,847 – 60% below the figure for May 2008.

The top five postcodes in negative equity

•SR1 (Sunderland) 28.1% of loans in negative equity by an average of £5,947

•HU2 (Hull) 27.2% of loans in negative equity by an average of £4,545

•CB25 (Cambridgshire) 27.6% of loans in negative equity by an average of £13,369

•B2 (Birmingham) 31.2% of loans in negative equity by an average of £4,709

•NP24 (Newport) 26.7% of loans in negative equity by an average of £4,910

Negative equity hits one in six prime mortgages

Slightly misleading article surely... there aren't any prime mortgages in sunderland surely.... in any event cut a 100mile+ wide swathe accross the country running from liverpool/manchester upto newcastle area and you have whats comonly known as " the cancer zone" ( on the part of the raised smoking levels in those areas).... in that swathe theres an average of 20% of home owners who have an adverse credit record...... so there are many more repossessions in those areas so I suspect house prices will fall fastest ( or amongst the fastest in those areas).

I wouldn't though hold onto the data you have as its largely meaningless... nationwide have themselves said their regional data is worthless ( they have stopped shport of sayign their national data is worthless) so go down to the postal sector level as you have and its worse than meaningless... interessting but sadly meaningless.

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And just 2 short years ago it was all so differant , as the last of the suckers including 1,000's more amateur BTLers got sucked into the biggest housing bubble ever .... and now it's burst and the've been spat out of the bubble .... SPLAT !!!!

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And just 2 short years ago it was all so differant , as the last of the suckers including 1,000's more amateur BTLers got sucked into the biggest housing bubble ever .... and now it's burst and the've been spat out of the bubble .... SPLAT !!!!

but don't forget they're actually pension investments... oh dear...

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And just 2 short years ago it was all so differant , as the last of the suckers including 1,000's more amateur BTLers got sucked into the biggest housing bubble ever .... and now it's burst and the've been spat out of the bubble .... SPLAT !!!!

:P SPLAT or SPEW - all much the same! :P

Edited by eric pebble

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The 1 in 6 figure sounds very high to me. If it was true then the British housing market is screwed for a very, very long time - ...

And you're surprised, why?

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I have to sell a house for probate. One of the neighbours had a word with me and told me not to sell it cheaply as it would devalue all the neighbours houses.

VMR.

Just goes to show people have no shame when it comes to their 'money' (damn, there's no 'laughing in derision' smiley). Sorry to be ageist but I bet the prying neighbour was elderly, or at least late middle aged.

Truly tragic that people care that much about such things as what a neighbour's house sells for. Its not like the selling price is emblazoned in neon on the roof.

Selling 'cheaply' would be BMV. Simply promise to market it for a reasonable time, maybe 3 months?, and take the highest offer - ie. market value. Who could argue with that? ;)

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Guest KingCharles1st

If one takes this passage from the link in the "25K" thread-

"Although the lenders offering these deals are not household names, they do control a sizeable slice of the mortgage market. GMAC, for example, was a top 10 lender in 2007. These lenders all specialised in providing mortgage deals to the subprime, near-prime, self-employed and buy-to-let markets – in other words, riskier borrowers who might not have been offered decent rates from a high street bank or building society.

David Hollingworth of London & Country mortgage brokers said: "In some cases the rates on offer were very competitive and would have attracted many prime borrowers too. Advantage, for example, offered some very keenly priced fixed rates."

These lenders, he said, never planned to keep these debts on their books for long. Most hoped to sell on – or "securitise" – the loans at a later date. But with the collapse of the securitisation market, lenders are now having difficulties financing these debts, which is why they are now adopting such "innovative" strategies. "

-Feed that sentiment into this thread, and one can really see that the financial houses are getting tapped at both ends now- oh deary dear.

There is going to have to be a UK financial reset how, I haven't a clue, but there has to be one.

Edited by KingCharles1st

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......./

-Feed that sentiment into this thread, and one can really see that the financial houses are getting tapped at both ends now- oh deary dear.

There is going to have to be a UK financial reset how, I haven't a clue, but there has to be one.

Yup. Mortgages STRICTLY no more than 3.5 x salary; 10 year prison sentence for any lies. That'll sort it in one go.

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