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‘Vast majority’ of homeowners have equity cushion

‘Vast majority’ of homeowners have equity cushion

Category: Mortgages

Updated: 08/08/2011
First Published: 08/08/2011

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The vast majority of homeowners enjoy a substantial cushion of equity in their homes, mortgage lenders have suggested.

Despite the recent weakness in house prices, the Council of Mortgage Lenders (CML) has calculated that the aggregate loan-to-value ratio on mortgaged property in the UK is less than 60%.

Nearly half of existing borrowers have outstanding mortgage debts equivalent to less than 70% of the value of their home, while a further quarter have an equity cushion of between 10% and 30% of the property's value.

Overall, borrowers hold unmortgaged housing wealth worth around £800 billion.

At the same time, however, the CML said some 827,000 homeowners were in negative equity, a situation where their mortgage is larger than the value of their house.

The figure is slightly down on the 900,000 homeowners reported to have been in negative equity at the end of 2008.

However, the CML said the current number 'does not compare' with the early 1990s, when it is estimated that the number of households experiencing negative equity peaked at 1.6 million.

The areas of Northern Ireland , Yorkshire and Humberside and the north east of England are more likely to have borrowers in negative equity.

The CML said having lower levels of equity made it more difficult for people to move home, and was a problem which had contributed to the slowdown in housing market activity in recent years.

"Negative equity is much less common than in the 1990s, and in the current cycle low interest rates and a relatively stable employment market are providing more options for borrowers and lenders in difficulty," said CML director general Paul Smee.

"There is no direct relationship between negative equity and mortgage payment problems.

"What typically causes difficulty for households is not a nominal fall in housing value but an unexpected change in personal circumstances, like the loss of a job or the breakdown of a family relationship."

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