Tuesday, February 10, 2009

One in five

Housing crash 'to put 2.5m in negative equity'

One in five homeowners could fall into negative equity as the recession bites, the City watchdog warned yesterday. House prices may decline by 30 per cent from 2007 levels, leaving 2.5million people with homes worth less than they owe on their loans, the Financial Services Authority said. This represents more than 21% of all mortgage holders.Some 500,000 of these are thought to be holders of buy-to-let deals, which the authority singled out as a particular concern. The housing crash is already the worst since the 1950s, with prices falling at an annual rate of nearly 20 per cent. At this rate, up to 200,000 people are falling into negative equity every month.

Posted by little professor @ 02:16 AM (896 views)
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6 thoughts on “One in five

  • I think it’s safe to say that the mail headline, for once, is nearly spot-on. They simply forgot the qualifying statement……

    …..Housing crash ‘to put 2.5m in negative equity’………This Year !

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  • mark wadsworth says:

    Good stuff. As a rule of thumb, one per cent off prices = another 100,000 in Nequity.

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  • There is a mistake in the FSA press release IMO:
    “””
    For some borrowers, falling house prices will lead to negative equity.
    There are a number of ways to estimate negative equity; we have used the
    methodology originally developed by Hometrack to estimate the impact of
    various falls in house prices on the number of households which might move
    into negative equity.7 If house prices were to fall by 30% from the end of
    2007, it is estimated that over 2 million residential mortgage holders and
    500,000 buy-to-let mortgage holders would be in negative equity.
    “””
    So it estimates the number of households not mortgage holders.

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  • Hang on…

    Daily Mail Article:
    “””
    The FSA believes the Government’s bank aid packages will restore the financial system to health and that the UK will experience only a ‘mild’ recession.
    “””

    FSA Report:
    “””
    The consensus forecast is for a mild and
    short-lived global recession in 2009:
    Consensus forecasts suggest that the total global economy will be close
    to zero growth in 2009. Developed countries will suffer recessions, and
    developing countries significantly lower growth than in 2008. However,
    absolute growth figures for some developing countries are expected to
    remain robust and growth in these economies should aid the global economic
    recovery. The consensus forecast suggests a recovery in 2010, with global
    growth at 2.0% (see Table B1). There is still considerable uncertainty over the
    forecasts and the global recession could be more prolonged than expected.
    “””

    They quote the word ‘mild’ and apply it to the UK, when it refers to the global outlook – that is very bad journalism – comment going in to the DM…

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  • Something that is worthy of note is how many people agree with the advice to ride it out given in: “ian, Maidstone, 9/2/2009 19:21”
    “””
    Negative equity will only occur if you sell your property. Keep making the payments and the debt will reduce thus cancelling out the negative equity. In due course once you have paid off the mortgage you have a valuable asset. So, do not send the keys back to the lender because you will be worse off as by paying rent you will NEVER have that valuable asset. Another benefit is that by making payments, should you wish to move up market you will need a lower mortgage because you have reduced the debt leaving more equity to carry forward to your new property. Simple! Ignore the doom and gloom merchants and keep on living your life sensibly.
    “””

    I like the response in “Phil, Salisbury, 10/2/2009 7:38”
    “””
    Ian, Maidstone. Sound advice during normal conditions, however, negative equity is the state of your asset at a given time. In other words you owe more than it is worth today. Currently with property dropping by circa 16% per annum, if you rent at about 700 per month you are paying £23 per day. A £175 house will lose 28K this year at best (£76 per day), therefore by buying you will have paid far less off the property than you have lost due to deflation and by renting you could put aside the £53 per day you have saved & have a 20K deposit to buy next year. Crude calculations I know but you can’t argue with the facts !
    “””

    – How long can the aforementioned people hold their nerve & income? Plus there are interest rates to take into account, which may go way up before the bottom is actually reached – most of them have probably totally forgotten about that risk.

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  • 51ck-6-51x @ 4 – well done for spotting the switch from UK to Global. However, the thing that stands out for me is the fact that this will be the worst recession in living memory. The FSA has already done a pretty good job of showing it hasn’t got a clue what happens in the real world and this just confirms that.

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